What is impermanent loss?

Impermanent loss is the temporary loss of funds that can occur when providing liquidity. It can be explained as the difference between holding an asset and providing liquidity for an asset. Impermanent loss occurs one asset diverges from another in a liquidity pool. Losses are made permanent when removing liquidity before the prices of the two assets in question have returned to the same price ratio as when liquidity was added. As a result, providing liquidity for volatile assets is a risk that should be carefully assessed.