What is impermanent loss in yield farming?

Liquidity pool impermanent loss happens when the price of a token increases or decreases after you deposit them in a liquidity pool . This change is considered a loss when the dollar value of your token at the time of your withdrawal becomes less than its amount at the time of deposit.

Impermanent loss (IL) is the risk that liquidity providers take in exchange for fees they earn in liquidity pools . If IL exceeds fees earned by a user when they withdraw, it means the user has suffered negative returns compared with simply holding their tokens outside the pool.

We call this loss “Impermanent Lose”. It’s technically impossible to reduce 0 , but under %1 loose rate is perfect value, as well as over %5 lose is alarm about your losses. Let’s explains some examples. Notes: If you use USDT or other stable coins, price change should be 0.