Impermanent Loss

The definition

Impermanent loss is the dollar gap between two things:

• ✓What your LP position is worth at today's prices.
• ✓What the same tokens would be worth if you'd just held them in your wallet instead of LPing.

The gap exists because an AMM's curve forces you to sell whichever token is going up and buy whichever is going down — you become a buyer of weakness and a seller of strength, mechanically. That's great if prices mean-revert and terrible if they trend.

It's called impermanent because if prices return to the ratio they were at when you entered, the gap closes back to zero. It only crystallizes when you withdraw at a different ratio.

What v2 IL actually looks like

For a constant-product pool, the IL formula depends only on the price ratio between exit and entry:

where r is the ratio of new price to old price. A few reference points:

IL is symmetric: a 50% drop and a 100% rise both create roughly the same IL. The further prices diverge from where you entered, the larger the gap.

Concentrated liquidity changes the shape of IL

A Slipstream position only earns fees while in range, but it also only experiences IL relative to its range, not the whole curve. Once price moves outside your range, you're entirely in one token, and from that point on you experience the same P/L as just holding that token.

The effective amplification of IL inside a tight range is roughly the same multiplier as your capital efficiency. A 10× concentration on USDT/USDC means 10× the fees while in range — and10× the IL sensitivity if the peg breaks. This is why narrow ranges are great on stable pairs that genuinely stay stable and dangerous on pairs that don't.

What offsets IL on Topaz

IL is a real cost; the question is whether earnings cover it. On Topaz an LP's gross yield has three components:

• ✓Swap fees. The core LP yield — your share of trading fees. Higher fee tier and higher volume mean faster IL recovery.
• ✓TOPAZ emissions. If you stake your LP token or position NFT in the pool's gauge, you earn TOPAZ proportional to the gauge's vote share. Voters direct emissions to productive pools, so high-volume pools often receive high emissions too.
• ✓External incentives (bribes). Pools where a project wants liquidity may have bribes attached — but bribes pay voters, not LPs. LPs benefit indirectly via the emission flow.

A profitable LP position is one where (fees + emissions) over the holding period exceeds IL plus gas. For tight Slipstream ranges, that math is checked epoch by epoch — if a range stops earning, rebalance or wind down.

Practical takeaways

• ✓Stablecoin pairs experience tiny IL — that's why stable pools and tight Slipstream ranges work there.
• ✓Correlated pairs (ETH/stETH) have small structural IL plus episodic depeg risk.
• ✓Volatile pairs are where IL bites. Treat the LP position as a yield strategy, not a hold strategy.
• ✓Wide ranges or full-range positions in Slipstream mimic v2 — same IL profile, lower fee yield, less management.
• ✓Emissions and fees are the offset. A pool with no votes and no volume is just IL.

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