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So, impermanent loss happens when the price of the assets in the pool changes. But how much is it exactly? We can plot this on a graph. Note that it doesn’t account for fees earned for providing liquidity.
Here’s a summary of what the graph is telling us about losses compared to HODLing:
- 1.25x price change = 0.6% loss
- 1.50x price change = 2.0% loss
- 1.75x price change = 3.8% loss
- 2x price change = 5.7% loss
- 3x price change = 13.4% loss
- 4x price change = 20.0% loss
- 5x price change = 25.5% loss
There’s something important you also need to understand. Impermanent loss happens no matter which direction the price changes. The only thing impermanent loss cares about is the price ratio relative to the time of deposit. If you’d like to get an advanced explanation for this, check out pintail’s article.