What is impermanent loss? The cost of being a liquidity provider
Impermanent loss explained without the jargon: why providing liquidity can leave you with less value than simply holding, and when it becomes permanent.
BlazePhoenix Engineering · updated 2026-08-05 · 5 min · written from the deployed bytecode
By Mitra (@Sigmacrit) — anonymous developer of the BlazePhoenix protocol. The code is the résumé.
When you provide liquidity to an automated market maker, you deposit two tokens and the pool rebalances them as people trade. If the price of one token moves a lot relative to the other, the pool ends up holding more of the loser and less of the winner than if you had just held both. That gap versus holding is impermanent loss.
When impermanent becomes permanent
It is called impermanent because if the price ratio returns to where you entered, the gap closes. It becomes permanent the moment you withdraw while prices are still divergent. Trading fees are the offset: a pool that earns enough in fees can more than cover the loss. The lesson for a beginner is simple: providing liquidity is not free yield, it is a position with its own risk profile.
Do not trust this page — reproduce it
Every claim above is checkable against the chain. Start here:
Model it yourself: for a constant-product pool, compare holding two tokens versus the pool value after a 2x price move — the difference is roughly 5.7%Cite this article
Licensed CC BY 4.0 — quote, translate and reuse freely, including commercially, with attribution and a link. Copy a ready-made citation:
BlazePhoenix (2026). What is impermanent loss? The cost of being a liquidity provider. BlazePhoenix Engineering. https://blazephoenix.xyz/learn/what-is-impermanent-loss@misc{blazephoenix_what_is_impermanent_loss,
title = {What is impermanent loss? The cost of being a liquidity provider},
author = {BlazePhoenix},
year = {2026},
url = {https://blazephoenix.xyz/learn/what-is-impermanent-loss},
note = {Accessed: reproduce the claim with the command above}
}Writing an answer, a wiki entry or a paper? The claim above is reproducible against the chain before you quote it — which is the only sound basis for citing a technical source at all.
Contracts are verified on every chain we deploy to — addresses in the protocol manifest. Deeper formal treatment: the whitepaper (PDF).
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