The Triple Realm of 'Impermanent Loss' The translator of the term 'impermanent loss' must also be a Buddhist enthusiast. Because its English literal translation is: non permanent loss. This is an academic concept, such as adding a MEME+ETH to a pool. Let's assume we each invest $100. During your participation in LP, the prices of these two underlying assets may fluctuate, possibly rising or falling. During this period, the difference between the value of your LP assets and the asset price when you do not participate in LP (whether positive or negative) is called non permanent loss (also known as impermanent loss in Chinese translation). When you plan to withdraw the assets invested in LP, if the asset price at the time of withdrawal is different from when you added LP, it will inevitably result in unpredictable losses. However, if you are lucky enough to take out the LP and join it exactly the same, then this' non permanent loss' will magically disappear. Your earnings happen to be the LP commission income. Otherwise, your total earnings will be: The profit from handling fees minus the portion of impermanent losses. But there is a blind spot or misconception here. This so-called 'non permanent loss' is not compared to the initial amount of funds you invested (such as the $200 mentioned earlier), but rather: If you do not participate in LP, the asset value. So this is more like the opportunity cost of choosing not to participate in LP. Having said so much earlier, it's actually a bit academic. So, let me talk about the three realms of impermanent loss in my eyes: 1. Ignorant and ignorant Seeing the high APR returns of LP, my mind immediately rushes into it, regardless of the underlying asset price fluctuations, let alone the unpredictable losses. A typical case of being blinded by one leaf, only focusing on returns and not risks. 2. Be cautious and careful After losing money, LP gradually understood the concept of risk control and the advanced concept of "impermanent losses". So being cautious and even timid, afraid of the losses caused by the decline, afraid of unpredictable losses. Some people even wonder, can we hedge it? By using financial instruments to hedge against price fluctuations of underlying assets, wouldn't it be possible to arbitrage risk-free and earn pure LP commission income? So all I can say is: imagination is beautiful, reality may beat you up. 3. Clear the fog and see a sunny day At the next level, you will find that your LP commission income comes not only from user transactions, but also from underlying asset price fluctuations. The so-called profit and loss come from the same source, without fluctuations, where can there be profits. Decline is the norm, and fee income serves as a buffer; The rates (such as 1%, 2%, 10%) are compensation for sharp fluctuations, and you cannot charge as high as you want. High rate pools may not always have higher returns than low rate pools (prolonging the time period). Forget about opportunity costs, forget about the fear of decline, forget about impermanent losses. The brave win when they meet on a narrow road. LP is also a game that balances risk (asset decline) and return (asset rise+commission income).