What Is Impermanent Loss?

Last updated August 30, 2021

Impermanent loss happens after providing liquidity to a liquidity pool when the price of the assets you have deposited changes greatly from when you deposited them. This is very common when trading volatile assets such as cryptocurrency. The larger the change in price is, the more exposed you will be to impermanent loss, meaning that you will withdraw less dollar value than you deposited.

So, if you are losing money that won't be returned, why is it called “impermanent”? Because there is always the possibility that the price of the assets returns to its original state and your loss disappears. However, keep in mind that this is rare and that most often impermanent loss results in a permanent loss.

Just like providing liquidity on any decentralized exchange, there is a possibility of experiencing impermanent loss on the Gravity DEX protocol.