What is impermanent loss?

Impermanent loss is considered a temporary loss of funds that occurs when providing liquidity to an Automated Market Maker (AMM) such as Uniswap. 

When providing liquidity to an AMM pool you will provide 2 (or sometimes more) assets to the pool. The pool is designed to keep an equivalent value of both of those assets within the pool at all times, so if one of the assets increases in price more than the other asset in the pool, the amount of that asset within the pool will decrease and the amount of its opposing asset will increase.

The easiest way to think about this is that when you provide liquidity to an AMM pool you own a % share of the total value within the pool, not an exact amount of tokens.

The reason it is referred to as impermanent is in theory you will earn back the difference over time in fees from trading in the pool. It is worth noting that this is not always the case depending on the amount of trading done within that pool, your share of the pool, outside incentives, and many other factors. 

To calculate impermanent loss you can use this calculator: https://www.impermanent-loss-calculator.net/

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