Impermanent loss is when a liquidity provider has a temporary loss of funds because of volatility in a trading pair.
Impermanent loss describes the temporary loss of funds occasionally experienced by liquidity providers because of volatility in a trading pair.
This also illustrates how much more money someone would have had if they simply held onto their assets instead of providing liquidity.
After arbitrage, a liquidity provider may end up with a greater amount of DAI and slightly less ETH. Impairment loss assesses the current value of their assets against what they would be worth if left sitting pretty in an exchange.
The loss only becomes permanent if a provider decides to withdraw their liquidity for good.
Join the thousands already learning crypto!