@tilt6

Impermanent loss occurs when the value of assets in a liquidity pool diverges in price, resulting in a lower value than if the liquidity provider had simply held the assets outside the pool. This happens because DEXs use automated market makers (AMMs) that require liquidity providers to contribute pairs of assets. If the price of one asset increases significantly compared to the other, the AMM rebalances the pool, causing liquidity providers to end up with less of the higher-value asset and more of the lower-value one. While liquidity providers earn fees from trades in the pool, these fees may not always be enough to offset the losses caused by price fluctuations, especially in volatile markets.

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