The unrealized loss an LP experiences when the price ratio of pooled tokens diverges from the ratio at deposit. If one token appreciates significantly, the LP holds less of that token than if they had simply held it. The loss is 'impermanent' because it reverses if prices return to the original ratio. For a 2x price change, IL is ~5.7%.
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The unrealized loss an LP experiences when the price ratio of pooled tokens diverges from the ratio at deposit. If one token appreciates significantly, the LP holds less of that token than if they had simply held it. The loss is 'impermanent' because it reverses if prices return to the original ratio. For a 2x price change, IL is ~5.7%.
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AMMs, routing, liquidity, lending, and trading infrastructure.
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Impermanent Loss (impermanent-loss) Category: DeFi Definition: The unrealized loss an LP experiences when the price ratio of pooled tokens diverges from the ratio at deposit. If one token appreciates significantly, the LP holds less of that token than if they had simply held it. The loss is 'impermanent' because it reverses if prices return to the original ratio. For a 2x price change, IL is ~5.7%. Aliases: IL Related: Liquidity Pool, AMM (Automated Market Maker)
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A smart-contract-held reserve of two or more tokens that enables trading via an AMM. Users deposit token pairs in specified ratios to become liquidity providers and earn trading fees. Pools are identified by their token pair and fee tier. Pool depth (total value locked) determines price impact for trades.
A protocol that enables token swaps using algorithmic pricing against pooled liquidity instead of matching individual buyers and sellers. AMMs use mathematical formulas (typically constant product x*y=k) to determine prices based on the ratio of tokens in a liquidity pool. On Solana, major AMMs include Raydium, Orca, and Meteora.
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A smart-contract-held reserve of two or more tokens that enables trading via an AMM. Users deposit token pairs in specified ratios to become liquidity providers and earn trading fees. Pools are identified by their token pair and fee tier. Pool depth (total value locked) determines price impact for trades.
A protocol that enables token swaps using algorithmic pricing against pooled liquidity instead of matching individual buyers and sellers. AMMs use mathematical formulas (typically constant product x*y=k) to determine prices based on the ratio of tokens in a liquidity pool. On Solana, major AMMs include Raydium, Orca, and Meteora.
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A protocol that enables token swaps using algorithmic pricing against pooled liquidity instead of matching individual buyers and sellers. AMMs use mathematical formulas (typically constant product x*y=k) to determine prices based on the ratio of tokens in a liquidity pool. On Solana, major AMMs include Raydium, Orca, and Meteora.
An AMM design where liquidity providers concentrate their capital within specific price ranges instead of across the full 0-to-infinity range. CLMMs dramatically improve capital efficiency—LPs earn more fees per dollar deposited within their active range. If the price moves outside the range, the position becomes inactive. Orca Whirlpools and Raydium CLMM are leading implementations on Solana.
A smart-contract-held reserve of two or more tokens that enables trading via an AMM. Users deposit token pairs in specified ratios to become liquidity providers and earn trading fees. Pools are identified by their token pair and fee tier. Pool depth (total value locked) determines price impact for trades.
A token issued to liquidity providers representing their proportional share of a pool's reserves and accrued fees. LP tokens can be burned to withdraw the underlying assets. The value of LP tokens changes as the pool's token ratios shift and fees accumulate. LP tokens are often stakeable in yield farming programs for additional rewards.