That is a 20 ETH price difference from the initial 40 ETH deposit, resulting in an impermanent loss of 20 ETH. But it just so happened that transaction fees were extraordinarily high, providing an additional 10 ETH to your share of the pool. In this case, the loss on your return would only be 10 ETH at market value. It is impermanent because the supply of tokens in the pool can return to a 1 BTC to 10 ETH ratio in the future. But if a liquidity provider gains enough exposure, rewards from transaction fees can potentially make up for the impermanent loss.<\/p>\n
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Bancor generates millions in fees per month for users who deposit their tokens in the protocol, offering up to 40% APR on tokens like ETH, WBTC, LINK, USDT, MATIC & more. Bancor is owned by its community as a decentralized autonomous organization (the BancorDAO). This difference between holding two assets and staking them in a pool is called impermanent loss. It is called that because the loss is not realized unless the stake is withdrawn. If ETH goes back to 100 DAI, and I withdraw my funds then, there wouldn\u2019t be any impermanent loss. Impermanent loss is one of the fundamental concepts that anyone who wants to provide liquidity to AMMs should understand.<\/p>\n
In fact, even pools on Uniswap that are quite exposed to impermanent loss can be profitable thanks to the trading fees. Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit. In a volatile marketplace, impermanent loss is almost guaranteed when staking cryptocurrency assets within a standard liquidity pool.<\/p>\n