You may have seen the values of your tokens constantly change after providing liquidity into a pool. This is due to what is referred as impermanent loss. The deposited assets in the pool are used by parties to facilitate their swaps; if one asset becomes more in demand than the other (which is reflected in the price of it increasing), you are left with the difference reflected in the liquidity pool and by extension your individual liquidity position. For example, if you added liquidity for USDC & ETH and the price of ETH then increases, you will have more USDC and less ETH.
The reason this loss is impermanent is due to the fact that these assets can return to their original values at the point of time you deposited them. The final amount of tokens you receive is not cemented until you withdraw your liquidity from the pool!
Additional Resources
Below are some useful articles (as well as calculators) for projecting token changes based on shifting price metrics:
- https://finematics.com/impermanent-loss-explained/
- https://chainbulletin.com/impermanent-loss-explained-with-examples-math/
- https://www.impermanent-loss-calculator.net/
- https://dailydefi.org/tools/impermanent-loss-calculator/
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