Decentralized Finance (DeFi) has opened the door for anyone to earn passive income by providing liquidity to decentralized exchanges (DEXs). Attractive Annual Percentage Rates (APRs), trading fee rewards, and liquidity mining incentives have encouraged millions of investors to become Liquidity Providers (LPs). However, many newcomers focus solely on the potential rewards while overlooking one of the most important risks associated with liquidity provision: Impermanent Loss (IL) . This hidden cost explains why many liquidity providers can still make a profit—but ultimately earn less than they would have by simply holding their tokens in a wallet. Understanding how Impermanent Loss works is essential for anyone participating in DeFi, as it directly affects the real profitability of liquidity pools. What Is Impermanent Loss? Impermanent Loss is the opportunity cost that occurs when you deposit assets into a liquidity pool instead of simply holding them. In simple terms: If y...