Impermanent Loss

Existing Automated Market Makers (AMM), such as Uniswap and Curve, require liquidity providers to provide liquidity of tokens in pairs or in a bundle prepared to swap within the provided liquidity pool.

As a consequence, the liquidity providers may suffer from impermanent loss. In the context of a stableswap, this will mean that the liquidity provider may get back assets as a combination of tokens that are different from what they have provided initially.

Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less value at the time of withdrawal than at the time of deposit.

It's impermanent because you only materialize the loss when you withdraw from the pool. You can remain in the pool until the asset prices recover to the initial position of your entry, but this might never occur.

Even though stablecoins (or different wrapped versions of a coin) will stay in a relatively contained price range, you are still subjected to a certain risk of impermanent loss in case one of the stablecoins loses its peg.

Community Market is designed to limit impermanent loss risk for liquidity providers.

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