Impermanent loss(IL) occurs as a result of asset rebalancing by the Automated Market Maker(AMM) as prices of the assets(tokens) in an LP position diverge from their starting ratio to each other. IL is the equity loss of an asset in an LP when compared to simply holding said asset by itself.
t= 0 (time period = 0, starting time) Alice’s assets = 10 BNB + 3,200 BUSD = 6,400 BUSD worth
Farming in LP t=1 Alice’s assets = 8.94 BNB + 3,577.71 BUSD = 7,155.42 BUSD worth
Held in Wallet t=1 Alice’s assets = 10 BNB + 3,200 BUSD = 7,200 BUSD worth
“Wait until the exchange rate returns to the initial rate before removing your LP position.”
t= 0 Bob’s assets = 1 BTC + 40,000 BUSD = 80,000 BUSD worth
t = 1 Bob’s assets = 1.15 BTC + 34,641 BUSD = 69,282 BUSD worth
t=3 Bob’s assets =1.15 BTC + 34,641 BUSD = 80,641 BUSD worth