🛡️ What is impermanent loss and how can you avoid it?

If you’ve explored DeFi or liquidity pools, you might’ve heard of “impermanent loss.” But what is it, and why does it matter?

💧 What is impermanent loss?

When you provide liquidity to a pool (like ETH/USDT), you’re adding equal value of two tokens. If one token’s price changes significantly compared to the other, when you withdraw, you might end up with less value than if you just held the tokens separately. That difference is called impermanent loss.

📉 Why does it happen?

Automated Market Makers (AMMs) constantly rebalance the pool. When prices shift, they sell more of one token and buy more of the other. You end up holding more of the underperforming asset.

⚠️ When is it permanent?

It’s “impermanent” because if the price ratio returns to what it was when you entered the pool, the loss disappears. But if you withdraw while prices are still off-balance, it becomes real loss.

💡 How to reduce the risk?

Provide liquidity to stablecoin pairs (e.g., USDT/BUSD) where prices don’t fluctuate as much.

Choose pools with high rewards (farming APYs) that can offset the loss.

Understand the token volatility before entering any pool.

🔍 Should beginners avoid it?

It’s not a scam, but it’s advanced. For most beginners, sticking with simpler products like staking or savings on Binance Earn might be a better start.

✅ Always trade on reliable exchanges with large liquidity to protect yourself from market volatility.

👉 Start with Binance

#DeFi101 #BinanceEarn #DYOR