Impermanent loss describes the difference between the value of a liquidity-provider position and holding the same assets outside a pool. It is driven by changes in relative token prices and is not automatically offset by trading fees.
The comparison depends on relative prices
When a pool rebalances after one asset moves against another, the provider’s token mix changes. The larger the relative price change, the more the pool position may diverge from a simple hold strategy.
Relative price movement is the key variable
A change in one token relative to the other changes the position mix and comparison.
Fees can offset loss, but outcomes vary
Trading fees and incentives may compensate providers, but they are variable and cannot be assumed to cover losses. Pool design, token volatility, liquidity, smart-contract risk, and exit timing all matter.
Trading fees are not guaranteed compensation
Pool income depends on volume, fee settings, and liquidity conditions.
Sources
Educational information, not investment advice.