What is Impermanent Loss?
Impermanent loss is the difference in value between providing liquidity to an AMM and simply holding the underlying tokens. It happens when relative prices move; the loss is 'impermanent' because it only materializes when liquidity is withdrawn at a different price ratio.
Why Impermanent Loss matters
Understanding Impermanent Loss is part of building a solid mental model of how Bitcoin, blockchain and Web3 systems actually work. Concepts in the Ethereum category sit at the foundation of the broader stack — get them right and the rest is far easier.
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Related terms
- AMM (Automated Market Maker) — A pricing formula that replaces order books.
- Liquidity Pool — A smart contract holding pooled assets for trading.
More ethereum terms
- DeFi (Decentralized Finance) — Financial services built from smart contracts.
- Ethereum — A programmable blockchain that supports smart contracts.
- EVM (Ethereum Virtual Machine) — The execution environment for Ethereum smart contracts.
- Gas — The unit measuring computational cost on Ethereum.
- NFT (Non-Fungible Token) — A unique, non-interchangeable token on a blockchain.
- Smart Contract — Code on a blockchain that automatically enforces its rules.
- Solidity — The most popular programming language for Ethereum smart contracts.
- Web3 — An umbrella term for blockchain-based, user-owned internet applications.
Keep exploring
Continue with the full blockchain glossary — 136 terms in total — or read the developer blog and FAQ for deeper context.