Compare two outcomes before depositing
When two assets are deposited in a liquidity pool, trades change the pool's balance between them. Impermanent loss compares the value of that rebalanced position with the value of simply holding the same assets in a wallet over the same period.
How a pool changes its balances
an automated market maker changes the pool balance according to a rule, so a large move in one asset leaves the provider with less of the asset that rose and more of the one that fell. A displayed estimate assumes conditions at one moment, so it should not be treated as identical to the final execution, settlement, or withdrawal result.
When fees affect the result
fees can offset part of the effect, but a volatile price path can still produce a worse result than simply holding the assets, and the comparison changes continuously rather than only at withdrawal. Consider separately the cases in which price moves, network congestion, shrinking liquidity, and a change in operating authority happen at the same time.
A relative-price example
For example, ignoring fees, if one asset doubles in relative price in a 50/50 pool, the pool rebalances toward holding less of the asset that rose and more of the other asset. The liquidity position can then be worth less than simply holding both assets. The label ‘impermanent’ does not erase a loss if prices do not return to the earlier ratio.
Verify pool and token data
separate the asset pair, fee tier, trading volume, price range, and protocol reward; then examine the reward token price and any lock-up conditions. Match official documentation with the on-chain address first, and avoid connecting a wallet through search advertising or a link with a similar name.
Questions before providing liquidity
Compare the pool position after fees and rewards with the hold-only alternative, using the same time period and withdrawal assumptions. A hope that prices will return to an earlier ratio is not a risk-control method.