@cubbiebunke

Impermanent loss occurs when the value of assets in a liquidity pool changes relative to when they were first deposited. This loss happens because automated market makers (AMMs) adjust the ratio of assets in the pool based on market prices. If one asset in the pair increases or decreases in value significantly, liquidity providers (LPs) may end up with a less favorable mix of assets when they withdraw, leading to a loss compared to simply holding the assets outside the pool. Although the loss is "impermanent" (it can be reversed if market conditions return to the original balance), LPs risk losing potential gains. The larger the price divergence, the more pronounced the impermanent loss. However, liquidity providers can mitigate this risk by choosing stablecoin pairs or using strategies like yield farming.

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