What is Impermanent Loss in Crypto? (Animated + Examples) 

Man, I dicovered your channel just one hour ago and I'm having a Whiteboard Crypto's video streak.

it would be great if you included the fees that liquidity providers earn to show that providing liquidity doesn't always end in a loss

Opportunity cost of being a liquidity provider earning fees vs owning crypto outright price appreciation

I stumbled upon an absolute gem of a channel here, keep it up!!! When is the "how to reduce risk as a liquidity provider" video coming?

I'm liking every video you do, I want to support the channel because of the great work you are doing guys!

These playlists are a fantastic place to start in the world of crypto. Thanks for taking the time to put them together! Amazing doodle skills too! They really help demystify things for me! Have shared the channel with a couple of friends and will see what I can do about sharing wider.

Easy to understand and very clear. Thank you.

Great jobs guys. I'm truly grateful for all that I have learned from your videos thus far and plan to act on it. Halfway through the video, I wondered how the trading fees could compensate for the impermanent loss. Good to see you even touched on that at the end.

you are one of the best around!!!!... cheers from Mexico!!!! keep it up.

I don't understand how you can explain something so well.. time and time again.. I enter your videos completely lost and leave much more knowledgeable.

It's a precious service that you're providing. Compliments. 💐

Great explanation! Could you by using this video as a base to follow, explain the points to which the LP is triggering a tax event? What needs to be tracked to assure accuracy in calculating the tax consequence?

Thank you very much. The best I had found so far.

Best explanation on YT, thank you.

Also, divergece loss or gains really needs to be put in context compararing the % of divergence against the fees and rewards that maybe offered by the pool protocol. I hope you pick up from here for future videos

Thanks. This was helpful. I was about to withdraw early from a pool.

They really are amazing animations.

Daily dose of internet, lucaas and whiteboard crypto are the most no bs channels on youtube.

Really great crypto channel, i wish you 1M followers soon, that would mean people want to learn something, apart from learning the hard way by losing their money while trading on sh..coins without any idea about crypto at all. Congratulations.

Great content guys!! Thanks 👍👍

Hey thanks for the video! It's the only one I watched covering price drop of the volitile asset in a LP! Bravo! Still I have got a question... in your case, when price of ETH drop, the LP provider will get more ETH? Sounds like a good hedge in bear market if an investor is bullish in ETH

number one , perfect explain , Thank you

good video - On average How long do you hold positions - a week, two weeks...?

Your videos are awesome, thank you

hi, this is a great video about impermanent loss! I just want to ask you something : what about the fees for the trades that the LP earns? maybe i'm blind but i think you didn't considered them at all, why is it? I think they are a big part of why someone would be a LP, so the goal should be more like : impermanent loss < fees + new value of the liquidity pool. let me know if I am missing something, and thank you again for your amazing content

Hey man, I would love see a video on mark cuban’s iron finance bank run. I am reading thru the technical details but still can’t figure out what happened. Would be beneficial I think.

Nice work folks.

This is a amazing Video. However I think we should also include possible earning if we stake the LP & how we reconcile the stake earring + LP fee again the IL. I do want to see more on how the LP fees get added to your LP or paid to you for creating the LP. It wasn’t as clear as your many other videos

Great Video!

at 2:52 you said the price GOAL is 110,00... but if I spend 488 dollars to buy 4,652ETH, my balance goes to ETH= 95,37 priced at 104,88usd, and balance USD=10488 priced at 0,953usd. I didn't fully understand why the price goes to 110,00 with that buy... And why did you used that amount of 488,00? was it the price you should spend, given the circunstances, to make the AMM rebalance ?

Question: Is this similar to having equities that are "value traps"?

I'm gonna make a comment to every video😂 ..this channel doesn't stop surprising me. .

this channel is great, i just wish my brain would store this knowledge better :D

Thank you for so much knowledge. How about if one of your pair pumps, you gain a huge % of impermanent loss. But a month after your 2nd coin pumps too. Does that nullify the impermanent loss. I am just confused if the movement should be at the same time to have a lesser impermanent loss.

Awesome vids! I have two questions though. 1. When you cash out from the liquidity pool, don't you get back your eth? Why would you lose? 2. Is the impermanent loss covered by the rewards??

Great channel and content!

When you cash out do you receive the same number of coins you provided or do you get the value of the coins you provided?

Good amount effort has gone into making such an informative video though the last minute is not that clear where you showed the status of Imperm. Loss VS price movements of assets + that chart/graph still looks scary :) Could have explained that in a separate video though. However, overall a gem of a video. Thank you.

How do you calculate the number LP tokens you receive given the pool's value ratio and product constant (i.e. 50/50 and $10M), the pool's current asset ratio (i.e. 100 of asset A, 150 of asset B), and the current value you want to provide (i.e.. $10,000)? Wha't the formula for the number of LP tokens given those information?

Awesome video like all Whiteboard Crypto videos. I did not get the part where $7800 + $7692 equal $15295.

thanks for the knowledge

Thanks alot sir !

Great video, thank you! Could you tell me, what software do you use for animation?

Sounds like a lose-lose situation for the liquidity provider. Some examples as to why it's beneficial to be a liquidity provider would be nice.

Great video that explained it very well. So in order to take profit both pair in the pool of coins must be virtually equal in value to pull your profit. However, how is this possible in a very high volatile crypto coin market? Is it a matter of gambling? is there any proven strategy on when to get in and out? If there is any expert on this to help explain this part as I think when I read many comments I feel like people they do not know what they are doing, it just a matter of time when they get hit by a big loss

Phenomenal

Hi Whiteboard Crypto. Do you know where I can find a good explanation on how to buy crypto assets at a reduced price from a liquidity pool? Thanks!

Thank you :)

Thank you.

Great video

Hi, excellent video I helped me a lot I have a doubt where 14285 comes from in 05:28 ? I know that 1 million comes from the constant product and 130 in the ether quantity in the pool but I don't get where 14285 comes from

Keep it up ser!

You should collaborate with finematics, another great channel like yours.

So if we invest long enough, the yield generated from the liquidity pool could offset IL right?

great videos

I mean by the time you pay the exchange fees, slow ass Arbitrum fees and so on, is there even any 'arbitrage' opportunity left?

can you have a impermanent loss on Staking? or its only a liquid provider on a Liquid Pool?

Transaction fees could cover the impermanent loss if there are enough transactions done right ? This should be taken into account

Thank you

Could someone break down example two using the AMM equation (x*y=K). I was able to get the first example but am struggling to get the same answers in the video for the second example. Much appreciated

About liquidity pools. Is the price of an asset in the pool isolated from the rest of the market? I guess my question is why isnt the price of the Eth in the pool reflected of its true value in the marketplace? In addition what happens over time as new liquidity providers want to add tokens to the pool? Are they doing the 50:50 split at the current market value, or based on what the equilibrium is currently set in the pool?

Shouldn't we also consider fees earned through the transactions to calculate the impermanent loss or profit?

What about when u get reward in the token you provided in the liquidity pool ie. you provide eth and usdt in a pool and receive eth as a reward can that cancel out your impermanent loss?

So does this mean you shouldn't provide liquidity to pairs where one of the coins is a stable coin? The value of those never actually changes right?

Has the video about reducing our risk as a liquidity provider been made?

So when you provide liquidity, your coins' value upon deposit keep their price and are not subjected to the volatility of the market??

So if ill be liqudity provider? The token that i invested will decrease? Or just the value? Tnx in advance.

de centralized lol by putting a buy/sell order to a central server that approved transfer of a item (crypto) from one wallet to another. whats different then a bank zelle to another?

Thank you for explanation! One question though, where does that 1 mil dollars come from?

Can anyone share how to calculate the 30 eth for the example of selling the eth to the LP until it reaches 60 dollars?

Please, I rely on you to make me better understand ICP🙏🏾🙏🏾

Based on my understanding of the video on Automated Market Maker, If the trader puts $488 inside the liquidity pool which initially has $10,000 and 100ETH Liquidity pool: $10,488 $95.347 As a result of this, 4.653 ETH will be given to the trader in exchange for $488. When I calculated the current price of ETH at this point, 1 ETH = 10,000 / 95.347 = $104.88 1 ETH now costs $104.88 But, how come is it that 1 ETH costs $110 after the trader exchanged 488$ with 4.653 ETH? I'm confused here.

hey can you please explain the math behind this, because as per your AMM video if we take out 4.652 eth the price should be around $105. How do you get $110?

No way I am explaining this to my grandma.

The examples used in here are with a stablecoin. As the price of the crypto (the other coin, i.e ETH) is always changing, my conclusion here is that providing liquidity with a stablecoin is a bad idea?

Damn, I usually speed up videos, it the first time that I had to see a video in slow motion

So basically all our bank deposits go through impermanent losses due to inflation but we never knew.

I am not sure, how about pair with unstable coin and stablecoin pool? Stablecoin would not rise and maintain the same 1 USD , so it will definitely impermanent loss forever if the unstable coin move up or down.

What happens if you only provide one coin to the pool eg: eth/usdt pool where you only provide eth (this is possible on binance but there is a fee)

So how often do you adjust your liquidity and when? What's the best way to do that?

In a scenario where I put in two correlated tokens, say 10 wETH and 10 stETH, I will receive an LP token representing my stake in the pool. The price of ETH in dollar terms goes down 20%, what will I receive when i burn the LP token to exit the pool? Will I get 10 wETH and 10 stETH i put in? Or will i receive 8 wETH and 8 stETH because the price went down? Is there any risk if the volume of the liquidity pool is low and spread is high and why? According to your video there should not be any impermanent loss as the assets are correlated. Thanks for explaining!

When you do those calculations you didn't count transaction fees right? Maybe that will compensate the liquidity provider?

Hello, brother, I have a little bit of confusion while calculation guide me through this. From where did you get 1million to divide to 130 eths because if we multiply 10,000 to 10,000 it gave us 100,000,000 and second thing is if we divide 1million to 130 it gave us 7,692 then where did 14,285 dollars come from ?

It appears to me that "Impermanent Loss" is more akin to "Opportunity Cost" than it is to say an "Unrealized Loss" on a stock or other security? Is that right? What I'm asking is, at the end of the day, the LP staker can get their stake back and the price increase is still there right? It's not like the LP staker can only ever extract out the exact monetary equivalent of the original stake at new market prices right? So then, if I understand this correctly, Impermanent Loss is just a sunk cost fallacy that's not worth considering? I've watched the liquidity pool video, this video twice, the AMM video, and the more complex Impermanent Loss videos. I just can't grasp the big concern over this UNLESS, at the time of extracting your original stake from the LP your units of the currencies contributed are adjusted (downward in the case of a price increase of one coin) so that the total monetary extraction is only equivalent to your original stake. Am I missing something here?

Correct me if im wrong but on 5:24 shouldnt 1 million be 100 million? because $10k (100 eth) x $10k (stable coin)?

How did you come up with the number of Ether that was provided?

Was 488 and 30 a derived numbers or did he formulate them?

Thanks for this content man! very informative. have you all heard this mercor finance? they are building AI trading, is that possible ?

So, basically a liquidity provider has to hope that either both assets rise or stay constant in value for the rewards to make the investment worth it. I guess that is why pools with very volatile coins also have very high APRs. Right?

Sorry I’m very poor in maths - but from your analogies would that simply means in reality we better hold on to our cryptos rather than invest them in liquidity pool?

one question: if you provide liquidity you will get the ETH back, right? You provide 1000$ in ETH and get the fees. Then you want to have the ETH back and the price went up to 1200$. Or is my thought wrone that I assume that the price will rise in the long-term? Why is it a loss if you hold it because it is still the same amount of ETH and you even receive some of the fees. I still don't get it.

Good video

If I’m doing the math right, it would mean that if the value of one coin stayed the same and the price of the other in the pair went downwards by a lot then you would still be losing money but only about half of what you would have loss if you just held the coins. Does that align with what y’all’s understanding is?

how come the eth invested in the liquidity pool did not also go up in value?

Make a video about bscscan please

Can you have an impermanent loss when using usdt

so im safe in impanent loss if my position is two different stablecoins?

Technically in accounting we say it as unrealised lose not impermanent lose

2:42 In example #1, why did the stable coin value increase from $10,000 to $10,488? I thought only ETH value increased... Overall excellent video, appreciate it!

Does the price of the stablecoins in a pool ever change?