Impermanent Loss

Definition

Impermanent loss is the difference in value between holding tokens in a liquidity pool versus holding them directly. Price divergence between paired tokens causes this loss. It's "impermanent" because it's only realized upon withdrawal, and may reverse if prices converge.

Technical Explanation

Cause: AMM pools maintain ratios (e.g., x*y=k). Price changes require ratio adjustment through arbitrage. Arbitrageurs profit at LPs' expense. Larger price divergence means greater loss: 2x price change ≈ 5.7% loss; 5x ≈ 25% loss.

This is a mathematical property of AMMs, unrelated to cryptography or quantum computing. Post-quantum security doesn't prevent impermanent loss—it prevents unauthorized fund theft.

SynX Relevance

Impermanent loss exists in any AMM, including quantum-resistant ones. SynX protects your LP positions from theft and manipulation with SPHINCS+ signatures. Market-based risks like impermanent loss require different mitigations (fee earnings, stable pairs).

Frequently Asked Questions

Does quantum resistance prevent impermanent loss?: No—impermanent loss is an economic property of AMMs, not a security vulnerability.
How do I minimize impermanent loss?: Provide liquidity for correlated pairs (stablecoins), earn sufficient fees, or use concentrated liquidity.
When should I withdraw?: When prices return to entry ratio, or when fee earnings exceed loss. Monitor positions carefully.

Understand DeFi risks. Informed liquidity provision on SynX