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Impermanent Loss

Description:

Impermanent loss is the temporary loss of funds that essentially occurs due to the volatility in the price of a particular token in the pool.

Impermanent losses are indeed an extremely troublesome scenario. The bigger the price change or volatility of an asset, the higher the chances of impermanent losses.

Various DeFi protocols have now started addressing the Impermanent loss issue and are coming up with different solutions to mitigate the losses of Liquidity Providers.

Reference:

https://uniswap.org/docs/v2/advanced-topics/understanding-returns/

https://blog.quillaudits.com/2021/01/19/impermanent-losses-explained-part2-defi-in-out/