Impermanent loss (IL) is the difference between holding tokens in your wallet and providing them as liquidity in a pool, after the token prices change.
- When the prices of the two pooled assets diverge, the pool rebalances automatically — and you can end up with a different token mix than you started with.
- IL shrinks (and can disappear entirely) if prices return to their original ratio.
- Swap fees and farming incentives can partially or fully compensate IL — though that's never guaranteed.
- IL is higher for volatile pairs and lower for correlated or stable pairs.
For a full explanation with worked examples — and a link to the impermanent loss calculator — see the guide: