Impermanent loss

Impermanent loss is the gap between the value of assets deposited in an AMM pool and what those same assets would be worth if you had simply held them in a wallet. It arises because a pool continuously rebalances: as traders push the price of one pooled asset up, they do so by removing that asset and adding the other, leaving providers holding less of the winner and more of the laggard.

The effect is a direct consequence of constant-product pricing. If the relative price of the two assets returns to where it was at deposit, the loss disappears, which is why it is called impermanent. If prices have diverged when you withdraw, the loss is realized. The larger the divergence in either direction, the larger the shortfall; it does not matter which asset moved.

Fee income is the counterweight. Every swap pays a fee into the pool, so a position in a busy pool can out-earn its impermanent loss, while a quiet pool offers little cushion. Pairs of assets that track each other, such as two stablecoins, minimize divergence risk by construction.

Before providing liquidity on OneSwap, weigh the pool's fee tier and observed activity against how independently its two assets move.