What Is IMPERMANENT LOSS? DEFI Explained - Uniswap, Curve, Balancer, Bancor

Have you ever provided liquidity to a liquidity pool just to realise that some of your coins have gone missing? In this video, we’ll learn what “impermanent loss” is and how it can affect liquidity providers’ profits.
In essence, impermanent loss is a temporary loss of funds occurring when providing liquidity. It’s very often explained as a difference between holding an asset versus providing liquidity in that asset. Impermanent loss is usually observed in standard liquidity pools where the liquidity provider (LP) has to provide both assets in a correct ratio, and one of the assets is volatile in relation to the other, for example, in a Uniswap DAI/ETH 50/50 liquidity pool.
If ETH goes up in value, the pool has to rely on arbitrageurs continually ensuring that the pool price reflects the real-world price to maintain the same value of both tokens in the pool. This basically leads to a situation where profit from the token that appreciated in value is taken away from the liquidity provider. At this point, if the LP decides to withdraw their liquidity, the impermanent loss becomes permanent.
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[@Finematics]

❓Have you ever been affected by Impermanent Loss?
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[@90nomads]

I got wrecked on AMPL/ETH pool - such bad timing 😥

[@anon-jo5gm]

What happens in the "opposite" scenario where token A increases in price and token B remains the same? What happens if both tokens increase in value? (Can't find the answer anywhere)

[@jadeemme3697]

Hey, would you be able to explain how APRs are calculated/executed for LP providers? Some of those APRs listed are insanely highly, like 1000% APR. Is that too good to be true, and how do the LPers accrue this APR? Through tokens? Through the coins they put into the LP?

[@siralexbateman]

Yeah, do you effectively get more if the opposite happened? The coin value goes down. Do you get the coins back plus more $?

[@AlexTrout79]

I’ve been affected by both impermanent and permanent loss

[@fatjohn1408]

I could listen to you saying 'arbitrageur' all day.

[@rafaelfarcher6955]

My new notification sound.

[@bloodthyrsty]

@@rafaelfarcher6955 :D :D

[@trapOrdoom]

On my life!

[@randomvids9388]

Lol

[@atletiekcoach2552]

😂

[@Hopeyoumakeit]

your channel is a gem

[@Finematics]

thanks! 🙌

[@scottPL77]

I've already gone through two videos on your channels and both explained to me difficult concepts which I failed before to understand by reading about them. Thanks for that. Really good ratio of knowledge shared vs. video length :)

[@gwho]

This didn't explain jack.

[@BillBlackfund4u]

@@gwho Made sense to me...

[@crvne]

o0o I love that! knowledge:vid Length is a new key metric imo.

[@cryptomadness7271]

@@gwho go back to one of his beginner videos.

[@theprez77]

Its great that Count Von Count is teaching Defi to the kids..
Great vids, thank you kindly for making, but sorry had to do it.

[@youtubeismyjockey7581]

Well explained, the calculation example really helps!

[@Bashar3A]

Great video. I'm holding on to some volatile assets I'm expecting to raise in price in near future, and thus reluctant to putting it in pools.

[@clearlybehind]

Thank you. Fantastic video. Arbitrageur part was explained in simple terms which was helpful putting together the whole concept.

[@beny.5736]

I guess the key lesson is that if you are providing liquidity, do so in assets that are expected to maintain their relative value over the long term if you don't want to suffer from impermanent loss.

[@gnarxy]

but you're missing the point of the LP tokens. Say you are doing a SOME TOKEN/DAI pair.. and providing the liquidity. DAI is a stable coin.. so even if SOME TOKEN goes up 500% in value, which would give you impermanent loss of about 25% of SOME TOKEN. But you also received the LP token for that pull and are farming more of SOME TOKEN at a 2000% APY, the additional SOME TOKENS you are earning and able to harvest, far outweigh the impermanent loss.

[@mr.november1857]

How do you know that they’re going to maintain their relative value? You don’t. Especially if it’s two assets you’re providing - making it that much challenging. The incentives I believe and the lack of fear can help - just don’t know anyone knows if anyone knows anything tbh

[@parrishdominguez3495]

@@gnarxy If you see this comment can you look at my question I posted up top :), I think you just answered my question. Is it fair to say if the APY is higher than the Impermanent Loss, and assuming the Assets didnt drop to 0. Profits will be made?

[@Showmetheevidence-]

True, except crypto is - by it's nature - so volatile that it's almost impossible to predict. Stable coins might be the only ones that have any level of stability.
Pesonally I think for smaller investors you're actually better off just staking coins.

[@Showmetheevidence-]

@@mr.november1857 They're mostly making it up! No-one can accurately predict the ratios of coin values...

[@Gibonsli]

Thank you for the professionalism!

[@JustMe-dw9rl]

Wow I’ve just found these videos. You explain everything in a succinct way with all the pertinent information. Thank you!
It should help a lot of people.

[@Finematics]

thanks!

[@nonamedlish]

Thank youman, I finally understand. Trying to learn this by reading about it was a nightmare

[@elhexidente9832]

Cant believe i didn't find this channel earlier! Thank you!

[@Finematics]

I'm glad you found it now :)

[@geekkstuff6674]

Finally understood permanent loss. Better than most videos on the topic. Loves the examples on how much you can lose.

[@theflipside2709]

Clear, succinct explanation!

[@jeromio21]

Thanks man , you are making Defi really accessible for everybody :)

[@Finematics]

Great to hear! Thanks :)

[@MrGrannyStylez]

thanks for explaining that concept in 10minutes! I like the visuals. keep up the good work :)

[@alainlavallee3448]

Finally a clear explanation , great

[@mattdhorstman]

Clear, concise, well-illustrated example. Well done.

[@Finematics]

thanks! :)

[@jeremyhazel9074]

Man.....subscribed...you killed it....love the way you explained the concepts

[@tobiprivat8878]

great! totally underrated content!!

[@tyvaughnholness1985]

This was fantastic, thank you! I appreciated the detail on the examples as well.

[@Finematics]

Glad it was helpful!

[@GreenfieldPortfolioResearch]

i'm amazed by the quality of the content. congratulations, yet again.

[@aaronfreeman4144]

This channel is awesome. I'm grateful for your expertise and time.

[@Finematics]

Thanks! Great to hear :)

[@jesseallan9006]

Excellent explanation. Thank you!

[@mcJayX]

AMAZING video. Thanks for posting.

[@soundisfunction]

This channel is truly phenomenal

[@gmanova]

what a fantastic explanation. thank you.

[@marcelchuo]

Best explainer video on DeFi out there. Thanks man

[@Finematics]

Thanks!!

[@gutzz12]

very informative always buddy
thanks

[@Molecularjewelry]

still the clearest explaination I can find - visuals help thanks

[@KylanHurt]

Very high quality video. Thanks you for making!

[@JohnAlanWoods]

Great video - I send this to anyone that needs to understand IL.

[@nada347_]

Liked and subscribed. Thank you for explaining these so effectively.

[@HippiePajon]

Thank you!! I finally understand this topic

[@GabrielRubens]

Great explanation, this channel is a hidden gem

[@blackalert3383]

Thanks for another great video. Would love to see another video on impermanent loss when it’s a non-stablecoin so two volatile cryptos. And any tips on managing that

[@lucsu1428]

Wow, thanks for the explanation and the cool graphic!

[@elleobi]

This was really helpful. Thank you!

[@CedricAbeck]

So clear, thank you so much !!!

[@limeroundup]

Incredible. Best explanation ever!

[@Finematics]

thanks!

[@viurnne]

great lengthy detail explanations

[@PrisonerZ3RO]

Best explanation EVER !!!!

[@Cheezenuts]

Does the dollar amount you put in the pool (excluding slippage & interest accrued) remain the same regardless of positive or negative volatility of the asset? Or can the dollar amount that you initially pooled increase as long as there’s a 50/50 balance between the two assets?

[@omidsarayanibafghi222]

Awesome videos! You have a talent to comprehend and explain hard to grasp concepts in a brief yet comprehensive format.

[@Finematics]

thanks!

[@rezaxxx]

Great video, thank you.

[@oveyshd]

Great videos, great illustration! Very educative.
Thank you

[@Finematics]

Thanks! Glad they are helpful :)

[@stevenxalchemy5906]

Another awesome video. Well explained on impermanent loss. Keep up the fab work!!!!

[@Finematics]

Thanks Steven! :)

[@Mike-cr1nc]

Thank you for this my friend, will recommend you !

[@Finematics]

Thank you too!

[@giordanogiordani81]

Hi, Finematics Team. How are you doing? Guys please, allow automatic subtitles in your videos. Maybe it will help a lot of others people, subscribers of your channel and me as well. As a no-english speacker even though been fluent in english, subtitles always help...thanks and congrats for your excellent work here. Cheers

[@Finematics]

thanks, started adding it for the new videos

[@TheRollupCo]

Your channel is amazing, very interesting DeFi video

[@internationalgolfconstruction]

Best vid on impermanent loss.

[@Finematics]

thanks!

[@hugoamorim5301]

Yes this is bad in current situation that we are huge bull market but in last 3 years was good. Nice video

[@raoulml1]

Thanks for the great content.

[@bonzo1928]

Very clear, thanks!

[@-.TS.-]

Definitely needed this!

[@ic3b3rgi23]

Great Video man, like always 💯

[@Finematics]

Thanks!

[@GabrielEnema]

Great info, your explanations are super easy to assimilate☺☺☺

[@DG-mo1zf]

Very informative video, thank you!

[@kenmeyer100]

Very valuable explanation! I have been wading through tons of materials where the authors themselves did no seem to understand the underlying concepts and just spit out some gibberish

[@agentlier6974]

You know your stuff really well man. Great in information 👍👍👍👍

[@Finematics]

Thanks!

[@themfu]

Great videos on your channel.

[@Jesussaft]

Great video! I am currently investing in a token which I expect to blow up soon (x10 and above). I thought I am smart by providing liquidity because I would gain fees on all the buys coming in but now it looks like there will be serious impermanent loss. Time to get out of the liquidity pool :D

[@sepman1]

You are amazing - 'Nuff said!

[@coreed3323]

This was extremely well explained. The best presentation I have seen on impermanent loss. It finally makes sense. Thank you. 👍

[@timschierenbeck2758]

Thanks so much again! You are like the teacher i wished for in shool :-)

[@Finematics]

thanks! :)

[@J_Arthur_]

Thanks for the great video! Would love to see one on Polkaswap And Sora! :)

[@martinpepper630]

Such a great channel! - Thanks you

[@Finematics]

thanks!!

[@gordongekko9742]

Great explanation! Thank you very much

[@Finematics]

You are welcome!

[@nadinounou]

Beautiful video thank you ♥️
If i am taking part in a liquidity mining pool with A/B, A and B being highly correlated, the risk is highly minimised right? if asset A grows 1000%, and asset B almost the same, then no impermanent loss if i got it well

[@lakemckenzie]

yeah you just got a sub!

[@richardscott724]

Wow! Awesome explanation….keep up the good work…

[@sergei.wallace]

Love these explainers!

[@Finematics]

thank you!

[@jochembraad1760]

Very well explained

[@katyaolivan6085]

Because of your vids, I understand everything better😃 thanks

[@Finematics]

Glad to hear that! :)

[@thefailedactor]

Brilliant Video which helped a lot.
So with Farming, and providing liquidity, volatility results in impermanent loss. De-risking this; stick to pools with single assets although the APY is lower.
Can you have impairment loss in single pools?
Or can I continue with lower APY; and if I exit, keep the original investment (Number of Tokens)

[@otismurrayiii1672]

Absolutely great video.

[@Finematics]

thanks!

[@cryptomckey318]

Is the calculation the same for non stable coin pools like CAKE-BNB or TWT-BNB or it's a lot more riskier ? Thanks for your efforts. It helps a lot. Kudos!

[@steveshuffle]

mate this is amazing. All of your content

[@Finematics]

thanks!

[@steveshuffle]

@@Finematics thank YOU

[@bespokespace2809]

fantastic video, thank you

[@Finematics]

thanks!

[@trevorryder9732]

Could you do a video on non-fungible tokens and their use so far and future use.

[@andina116]

I have gained a lot from defi mining, and I like this project.

[@BIGSUCCC]

I never knew your liquidity can actually appreciate in value other than fees if both assets rise in price, I always was under the assumption best case scenario you can pull out 100% of what you put into your LP + fees, worst case loosing value if your token pairing decreases in value + fees.

[@Rompelarueda]

in non-stablecoin pools, yes, if both assets increase in USD price, you will pull out more USD value than you provided, and depending on the IL (how much their pump differed), come out also with more of eachcoin due to fees.

[@Damsy388]

Great explanation. Subbed!

[@Finematics]

Thanks!

[@Zharadeen]

I love your page so much

[@LiteLiger]

Very solid and analytical video. So in technicalities it would be lot safer to invest in stablecoin pairings right? Due to the nature of prices fluctuating lot less.

[@temitopeagoro4603]

Could you possibly delve into Decentralized autonomous organizations? I love your content and explanations. I am really learning a lot! Thank you!!

[@Finematics]

Sure, there is a plan to make a video about DAOs soon! Stay tuned :)

[@ericniyongira4467]

This channel is really awesome. I am new to Yield Farming - Providing Liquidity, and I hope to learn more from you!
Anyone who can recommend me the best way to start?

[@poltondt5067]

can you please explain the formulas derived from the constant market maker formula to be able to get the amount needed for arbitrage?

[@Sonnyrei]

Great video, thanks! How did you get 19.07 on 3:31 and 0.93 on 3:36?

[@justdoitFR]

Thank you so much for this great content.
I am still trying to find out what could be risks for providing liquidity for a pair like USDT vs USDC...
Of course excluding any smart contract bug or any hacks because those risks are just inherent to everything in crypto.

[@Finematics]

The main risk is that one of the stable coins can lose its peg to the US dollar. USDT, for example, is not completely transparent, so we don't exactly know if they have all the assets to cover their outstanding USDT balance.

[@kenmeyer100]

@@Finematics yeah, it's like you want to cash out your chips and the casino operator say 'sorry, we have no more dollars for you'

[@postmanwithsnow]

There are none. Only risk is a bank run which won't occur until something really bad happens. But then all your other crypto will most likely be worth nothing anymore either 😉

[@davidhefer118]

Wow.. best explanation

[@Finematics]

thanks!

[@cryptohalloffame]

great videos, thanks

[@Finematics]

thanks!

[@zegikniet9999]

the intro to this video fits me perfectly. I did indeed not do any research before hand, only after hand YOLO

[@zegikniet9999]

btw i nominate these video's to be the most clear explenation i ever got anywhere. very well done

[@danielzirkel9616]

Really goog explanation 👍🏻
Now I have understood the impermanent loss.

[@Finematics]

Thanks. Glad it helped! :)

[@heliotropeness]

Your videos are great.

[@Finematics]

Thanks!

[@garg738]

VERY WELL EXPLIANED

[@Finematics]

thanks!

[@alphaguy4877]

Awesome explanation.

[@Finematics]

thanks!

[@alphaguy4877]

@@Finematics Can you provide links to the mathematical formula that you used to calculate the after arbitrage values at 04:50? Btw, I subbed.

[@NHill-dg8ch]

You just won a new subscriber

[@Finematics]

thanks!

[@gurpreetsaini7644]

One can use Solver in excel to find out the revised amount of ETH and DAI shown at 3:30.