Impermanent Loss
The opportunity cost LPs eat when pooled token prices diverge from when they deposited.
Definition
Provide liquidity to a memecoin/USDC pool at $1. Token moons to $10. The AMM rebalanced your position along the way — you now hold less of the memecoin and more USDC than if you'd just held the tokens. The difference is impermanent loss. It becomes permanent the moment you withdraw.
On a stable pair, IL is negligible. On a volatile memecoin pool, a 5x move can produce 25%+ IL — your fees may not come close to covering it. LPing a memecoin is a bet on fees > IL, not a bet on the token going up. // FACTCHECK: IL math holds for constant-product AMMs (Uniswap V2-style).
Examples
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Token 10x'd, I earned $200 in fees and ate $1,800 in IL. Net loss.
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Stable pair pools barely touch IL. Memecoin pools get wrecked.
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LP-ing your own memecoin during a pump sounds smart until you do the IL math.
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