DeFi · 53 / 86
Liquidity pools and impermanent loss
A pool holds two assets so other people can swap. If you deposit both, you earn fees, and you can still end up with less than if you had simply held the coins.
What a pool is
Traders pay a fee that goes to depositors. Your deposit is what they trade against. You do not control each trade.
The loss with the soft name
If one coin's price runs far from the other, the pool sells the winner and keeps more of the loser. Fees may not cover that. Calling it impermanent does not mean you can always exit whole.
You can also lose the deposit to a bug or a rug. The fee income is not a salary.
Check yourself
Do trading fees mean a liquidity provider cannot lose?
No. Price divergence and a failure of the pool can both cost more than the fees.
After this you can compare holding the two coins with depositing them, before you chase a pool's percentage.