What is Impermanent loss?

Impermanent loss is the gap between what your deposit is worth inside a liquidity pool and what the same coins would be worth if you had simply held them. It appears whenever the two pooled assets change price relative to each other, because the pool is constantly rebalancing you toward the asset that is falling and away from the one that is rising. The word impermanent means only that the loss is measured against current prices: if the price ratio returns to where you deposited, the loss disappears, and if you withdraw while the ratio is moved, it becomes permanent.

The arithmetic for a classic 50/50 constant-product pool is short. If one asset outruns the other by a ratio r, the position is worth 2√r divided by (1 + r) of the held equivalent, and that fraction is never above one. A 2x move in either direction costs about 5.7 percent against holding, a 4x move about 20 percent, a 10x move about 42 percent. Divergence in either direction costs something, which is why a pool of two assets that move together, two stablecoins for example, suffers almost none of it.

Fees are the other half of the trade. A pool pays liquidity providers a share of every swap, and that income is meant to compensate for exactly the rebalancing described above. Whether an LP position was worth it is therefore never the APR sticker alone; it is fee income minus impermanent loss over the period you were in. Concentrated liquidity positions, the Uniswap V3 style, amplify both sides: more fees inside the range, sharper loss when the price leaves it.

For a tracker the practical point is that an LP share is not a token balance. Its value has to be read as the two underlying assets it currently represents, priced separately, and compared against what was deposited. TrueHold reads LP positions by protocol and values them that way; the impermanent loss calculator on this site runs the same formula on numbers you type, without fetching anything.