Impermanent loss emerges when the two assets in an automated market maker move to a new price ratio, because arbitrage changes the pool’s inventory away from the mix you would have held.
Start with 1 ETH and 1,000 USDC in a 50/50 pool, with ETH at 1,000 USDC. If ETH doubles to 2,000 USDC, the constant-product rule x × y = k leaves the pool with about 0.707 ETH and 1,414 USDC. That position is worth 2,828 USDC; simply holding the original assets would be worth 3,000 USDC. The gap is 5.72% before fees, incentives, gas, or taxes.
What the swing does
The gap is not a fee or tokens vanishing. Traders buy the asset that became expensive and sell the one that became cheap until the pool price matches the outside market. Your LP share therefore contains less of the winner and more of the laggard. “Impermanent” means the comparison can improve if the ratio returns; withdrawing makes the result final relative to holding.
Choose the pool around the risk
For assets designed to stay near 1:1, a stable pool usually reduces the inventory distortion. For uncorrelated assets such as ETH and USDC, a classic x × y = k pool accepts wider swings in exchange for general-purpose liquidity. A concentrated or automated range can use capital more efficiently, but it needs a price view: move outside the range and the position may sit mostly in one token, earning little until rebalanced.
On syncswap, that choice is made at the pool level before you deposit. The chain changes costs and speed, not the arithmetic: a deployment on zkSync Era or a chain built with Matter Labs’ ZK Stack in the Elastic Network still rebalances reserves against trades.
Run the decision in order
- Record the starting balances and price ratio.
- Model the new ratio and compare the pool’s estimated value with simply holding those balances.
- Add realistic trading fees and incentives, then subtract gas and the cost of monitoring or rebalancing.
The practical verdict is simple: stable pools fit correlated tokens, broad liquidity fits a hands-off position, and concentrated liquidity fits an actively managed position when expected fees justify the work. APY is the last number to inspect, not the first.