What is Impermanent Loss｜ Explained for Beginners

💡 Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss.
📚 Read our articles to learn more on Impermanent Loss
Impermanent Loss Explained ▶️ bit.ly/2TDpgSN
What Are Liquidity Pools in DeFi and How Do They Work? ▶️ bit.ly/3syymvf
⏱️ Timestamps
What is Impermanent Loss 00:00
Why does impermanent loss occur 00:30
Managing impermanent loss risk 2:42
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[@MonsieurCafe]

Now that I understand them I don't like LP anymore

[@jonanbahnsen3935]

So in essence you make a hedge between the 2 pairs. If one of them goes crazy up or down you will only get half of the cost/loss of that asset compared to the other asset. And if both goes up your golden. But if one goes down and the other one goes up you'll get the midrange of that. Correct?

[@marionforge2769]

thats right. you got it

[@unsignedmusic]

*you’re golden

[@PeymanSayyadi]

Thanks for the concise and easy-to-understand explanation.

[@BEASTNYC]

good video - On average How long do you hold positions - a week, two weeks...?

[@Meliodas-cv5yc]

thanks for this !

[@D3athW1ng]

Perfect explanation - period.

[@mcmerry2846]

Not period

[@kyrie26]

It's "impermanence loss", not "impermanent loss". The wrong term has been propagated and made popular. "Impermanent loss" means that the loss is not permanent. As opposed to a loss caused by impermanence of the asset value. Please take note and don't follow the crowd heading in the wrong direction just because that's where the herd goes!

[@ihaverhinitis]

Thats why it was so confusing to understand this term.... thank you for that clarification

[@kyrie26]

@@ihaverhinitis English these days is not the same as it was 30 years ago. Now nobody cares about proper English.

[@mcmerry2846]

More like relative unreal loss

[@mcmerry2846]

Where ia the yield reinvestor in Binance?? Do I have do it manually??

[@marcushart2821]

Better to loan out your crypto and get guaranteed returns.

[@qobilruzmatov48]

Nice good

[@akashsi]

What's even the point of Providing liquidity if one is bound to lose money? For the Benefit of the Arbitrage trader?

[@nikitadomrachev]

Watch the last part of this video: they didn't take any benefits into account, however APY of particular staking pool can be 30-350%.

[@binyam11]

Maybe dumb question but what if you just have one crypto you provide to the liquidity or farm

[@karolcichor7168]

if ur on a yield farm theres always a pair, if u have one coin thats staking and impremanent loss doesnt affect tihs

[@alexvid8513]

What happens if ETH price goes down? Does the ETH multiply in the pool to maintain a constant of 10000 USD?

[@blazepunch]

No you’ll get less ETH back.

[@pdcdesign9632]

Impermanent loss: The value of your cryptocurrency could rise or fall while it is staked, creating temporarily unrealized gains or losses. These gains or losses become permanent when you withdraw your coins, and may result in you having been better off if you'd kept your coins available to trade if the loss is greater than the interest you earned.

[@escapeseekersshop]

so what do i do if at the moment the value of the crypto i staked with a stable coin is way down and the amount of my stablecoins as well lost in value. do i just wait till it goes back up to get back what i staked in stableccoins?

[@erlendyen5577]

What happens if the price of your crypto increases? Will you then get a gain when you remove your crypto from the pool? If that is the case it should be called "impermanent loss/gain".

[@oliversmall]

since you're providing two cryptos, these balance out and there will always be a loss if they aren't valued the same as when you provided the liquidity. Best-case scenario is you make money, but not as much money as you could have if you didn't provide the liquidity. Of course, the benefits to providing liquidity is that you receive a cut of the transfer fees

[@g00glian0]

@@oliversmall Great explanation sir.

[@user-mg7rk4vh4p]

Where the money goes - it's the same if Alice sell her 0.5 eth in the middle of the road (actually when price was 200), but here the "sell" is done by someone else

[@vuufke4327]

Aka "bag holding"

[@user-mg7rk4vh4p]

It's not

[@vuufke4327]

@@user-mg7rk4vh4p technically you are bagholdin if ever there was a loss

[@The_Minas]

Impermanent Loss meaning not permanent right? Then if it is not permanent how it will go back to your wallet?

[@g00glian0]

It means that as long as you leave it there, it could gain again.

[@samson8019]

Not sure why when Eth goes up in value rather than the pool having 2.5 Eth it has 10 and why there is 2000dai rather than 1000?

[@IWTBF]

Because the price of ETH went from $100 to $400

[@PapaSupernova]

Wait, so if the value of whatever coins youve added liquidity to goes up then this a bad thing??? Eh?

[@marionforge2769]

lol. you didn't listen carefully

[@JTG313]

I could be wrong but it sounds like impermanent lose is that same as investing in a coin and if the price goes down your money goes down but if the price goes up your money goes but as long as you sell high you profit

[@Saif600]

Don’t provide liquidity. You’re clearly a fool

[@bogse]

Im not sure but did this video kind of tell you not to do DeFI since you will lose money no matter what direction the cryptos go? Why would someone do this, its better just let them be in wallet or get money from staking. In DeFi your loss (you would gain more if just keep them in wallet) is quaranteed no matter where the price goes.

[@flangeinspector9959]

You lose money if the prices of your pair *diverge* by a lot from your entry point. If they move together, you're fine. If they go to the moon together, you're great.

[@EileenTheCr0w]

@@flangeinspector9959 Even if they both fall it can be good if they fall in tandem, your fee collection might offset losses enough so that you still come out ahead.

[@mcmerry2846]

@@flangeinspector9959 lose money = lose Crypto?

[@IWTBF]

@@EileenTheCr0w hello there so when you watch for example. Btc / link chart you need it to remain similar. How can they both moon? You mean in USD value and in ratio value also?

[@MichaelHayesagent]

So yea….. I still feel stupid about this . Is defi just a bunch of people trying to arbitrage coins ? What is the point of a dex?

[@BigHushAffiliate]

I just have one question. What is impermanent loss?

[@Andee...]

Impermanent loss.

[@BigHushAffiliate]

@@Andee... of course! It all makes sense now!

[@vuufke4327]

@@BigHushAffiliate euphemism for bag holding.. in accounting terms it's a yet unrealized loss, the capital loss can only be realized once you withdraw the cash, so far as you don't withdraw it's all still theoretical

[@BigHushAffiliate]

@@vuufke4327 Is THAT what impermanent loss is? Why such a complicated video? Thanks by the way.

[@Minimalici0us]

Damn that's too risky

[@EileenTheCr0w]

So never stake with stablecoins on one end, because it's virtually guaranteed you'll have large impermanent loss?

[@jeffreystcharles96]

In the example, Alice got: 4x gains plus any yield from the farm VS 5x gains

[@TheIngPin]

No - stablecoins lower the chance of impermanent loss - because at least one of the coins are not going to devalue (they tend to be stable)

[@mcmerry2846]

Sometimes

[@IWTBF]

@@TheIngPin wrong. What if you did dai / eth pair at the start you would have lost most of your ETH and ended up with a bag of dai when ETH appreciated more

[@atomsmovie]

💧💧💧

[@GTAGoldSilver]

I still have no clue what it means. Lol ma brain can't understand beyond certain concepts

[@Gott6666]

But why is it impermanent? You will always become more of the coin back that performed worse over time.

[@pip5461]

So if she didn't add her money to the pool, she would of ended up with more money ! So why add money to the pool ?

[@Mr850man]

permanent gains

[@pip5461]

@@Mr850man Ah....I see... thanks !

[@BigHushAffiliate]

@@pip5461 Do you really? Lol This is a jumbled mess of info. Can someone explain in simple terms?

[@pip5461]

@@BigHushAffiliate Not really, I'm still baffled. All I see is, she should leave her funds in, and never take them out... gaining compounded interest. But what good is that, if you want to spend or transfer funds to another trade... :)

[@wheatpennycollector8463]

on many exchanges you receive a portion of the trading fees in whichever token is on the exchange. For example, uniswap rewards LP providers with an 0.3% trading fee paid by the buyer. So the pool would split that depending on how much of the pool you own. A lot of times, this makes up for any impermanent loss.

[@marcushart2821]

Seems shady

[@Ustaleone]

nobody provides liquidity for free, usually there are rewards involved that make it worth your while.

[@BPoweredLove]

Shady?

[@gonutsfornuts9490]

@@BPoweredLove Slim ?

[@teomanaltan6170]

so you could not find a real person to read this? Or someone with better english?

[@g00glian0]

Rude turd.