What is impermanent loss?

Arbitrage keeps a pool's price in line with the market. So when one token rises, traders buy it out of the pool until prices match, and the pool (your share included) ends up with less of the winner and more of the other token. Next to someone who kept both tokens in a wallet, you are behind.

In a standard 50/50 constant-product pool, the loss depends only on how far the price ratio moves. A 2x move in either direction leaves you about 5.7 percent behind holding. A 4x move costs about 20 percent, and a 10x move about 42.5 percent. It is called impermanent because it disappears if prices return to where you entered.

That word is the part that fools new LPs. Most people withdraw after the price has moved, and then the loss is as permanent as any other. Concentrated liquidity makes it sharper: a narrow range earns more fees but loses more per dollar when the price runs through it.

Made-up numbers: you deposit $5,000 of SOL and $5,000 of USDC with SOL at $100. SOL doubles to $200. Holding would be worth $15,000, while your pool share is worth about $14,142 before fees. Fees had to top $858 for LPing to have been the better call.

Also called: IL, divergence loss.

There is no impermanent loss calculator in Cashboard. Raydium pools shows TVL, 24-hour fees and 24-hour and 7-day APR for each pool, which is enough for a first guess at whether fees could cover it.

• Raydium pools

• Liquidity pool
• Concentrated liquidity
• Automated market maker
• Yield farming