📉 Impermanent Loss Explained: A Core Risk in Liquidity Provision on STONfi
Impermanent loss is one of the most important concepts to understand before providing liquidity on a decentralized exchange like stonfi
It occurs when the price of the tokens you deposit into a liquidity pool changes compared to when you first added them. As prices move, the pool automatically rebalances your assets to maintain its ratio. This can result in a lower value compared to simply holding the tokens in your wallet.
🔍 Example (TON/USDT Pool on STON.fi)
Assume you provide liquidity to a TON/USDT pool on STONfi You deposit equal values of TON and USDT. If the price of TON increases significantly, the pool will gradually sell some of your TON for USDT to keep the balance.
When you withdraw, you may end up with:
Less TON
More USDT
Even though your total value might still grow, it can be lower than if you had just held TON without providing liquidity. That difference is called impermanent loss.
⚖️ Why It Is Called “Impermanent”
It is described as impermanent because if prices return to their original ratio, the loss can reduce or disappear. However, once you withdraw liquidity, it becomes permanent.
📊 Key Insight
Understanding impermanent loss helps users make better decisions when choosing pools, balancing potential rewards from fees or farming incentives against possible price divergence.