Impermanent loss is the amount of profit one would have seen had they held their tokens, rather than having them locked into a liquidity pool. Impermanent loss occurs when the value of one or both of the assets in a pair (ex. BNB/Embr) stray from each other. Causing the proportionate ratio that you deposited said assets at to change. If this occurs you would have generated more profit by holding your assets in a wallet, rather than having them provide liquidity. The calculation for impermanent loss does not take into account the trading fees or APY you receive for providing liquidity.

How to avoid Impermanent loss?

  • Trading fees can counteract the effects of Impermanent loss.

  • With 110% APY providing liquidity for EMBR/BNB your impermanent loss would have to exceed 110% (including trading fees/apy) for that year to result in any real losses.

  • If the ratio of assets return to the ratio you added them into the LP at, you will receive little to no impermanent loss

  • Impermanent loss is only relative to the ratio of the token pair, not their external price changes.

Example: If BNB and EMBR both go up 10% you will not see impermanent loss because the ratio of your pair will still be equal.

  • Impermanent losses are NOT realized losses until you remove your token pair from the LP.

Did this answer your question?