What is impermanent loss?

Impermanent loss is the hidden cost of providing liquidity when the two pooled tokens change in price relative to each other. Because an AMM automatically rebalances the pool as people trade, a provider ends up holding more of whichever token fell and less of the one that rose. The position is therefore worth less than if you had simply held the two tokens in your wallet and done nothing.

It is called impermanent because the gap only exists while prices are diverged; if they return to their original ratio, it disappears. It becomes a realized, permanent loss the moment you withdraw while the position is skewed. The wider the divergence, the larger the effect — a pair where one token doubles against the other loses meaningfully versus holding, regardless of trading activity.

What offsets it is fee income: a pool that sees heavy volume can pay enough in trading fees to outweigh the divergence, which is the whole bet a liquidity provider is making. Concentrated liquidity raises both sides of that trade-off — more fees, but sharper impermanent loss near the edges of the range. When you provide on Base or BNB Smart Chain through Sally, weighing expected fees against likely price divergence is the core decision behind whether a position is worth holding.