Impermanent loss is the divergence loss a liquidity provider (LP) experiences when the relative prices of the two tokens in a pool change after deposit — versus simply holding the same tokens in a wallet.
The intuition
An LP deposits two tokens into an Automated Market Maker (AMM) and earns trading fees in return. The AMM keeps the pool in balance by automatically selling whichever token rises and buying whichever falls — your position is rebalanced for you. That rebalancing is what causes impermanent loss: as one token moons, the AMM is selling it for the other, so you end up with less of the winner than if you had simply held.
A concrete example
Deposit 1 ETH + 2,000 USDC into a 50/50 pool when ETH is $2,000. Total deposit value = $4,000. If ETH rises to $4,000, the AMM sells some ETH for USDC to keep the pool balanced. Your position is now worth roughly $5,000 — still ahead. But holding 1 ETH + 2,000 USDC in your wallet would be worth $6,000. The $1,000 gap is the impermanent loss: 20% of what you would have if you had not provided liquidity at all.
When IL disappears
If the relative prices of the two tokens return to the level at deposit, the loss is "impermanent" — your LP position recovers to the same value as a HODL position. The loss only becomes permanent when you withdraw while the divergence is still in place.
Mitigation
Choose correlated pairs (USDC/USDT) to eliminate IL effectively. Use single-sided staking on protocols like Aave or Lido where one asset is deposited. Pick liquidity pools that reward with token emissions large enough to outpace the expected IL. AlphaTerminal's LP pool explorer scores pools on net yield after estimated IL, so you can compare the real economics before deploying capital.
Tracking IL
Once you have an LP position anywhere — Raydium, Orca, Meteora, Uniswap, Sushi — AlphaTerminal's /pools page reads the on-chain position and recalculates IL against your cost basis every 10 minutes. The view is paper-friendly so you can model any pool before entering.