The temporary loss in value you can experience when providing crypto to a liquidity pool, compared to if you had simply held those tokens.
Think of it like lending two items to a shop that adjusts their quantities as demand changes — when you get them back, the mix might be worth less than if you'd just kept them at home.
If you're earning fees by providing liquidity, you need to make sure those fees actually outweigh the impermanent loss, or you'll end up worse off than just holding.
Watch out for pools with highly volatile token pairs — the bigger the price swings, the bigger the impermanent loss. Stablecoin pairs tend to have much lower risk.
A shared pot of crypto tokens locked in a smart contract that enables trading on a decentralized exchange — users deposit tokens and earn fees in return.
Decentralized Finance — financial services like lending, borrowing, and earning interest, built on blockchain and available to anyone without needing a bank.
Annual Percentage Yield — the total return you earn on a crypto deposit or investment over one year, including the effect of compounding.
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