Impermanent loss occurs when you provide liquidity to a decentralized exchange’s liquidity pool and the value of the tokens you deposited changes compared to when you added them. This situation typically arises when you pair two assets, such as ETH and a stablecoin, in the pool.When you deposit these tokens, they are locked in the pool. If the price of one token rises significantly while you’re providing liquidity, the automated market maker will adjust the pool’s token ratio to maintain balance. This adjustment often results in you holding more of the asset that has decreased in value and less of the asset that has increased.If you withdraw your tokens when there’s been a price change, you’re likely to receive less value than if you had simply held onto the tokens outside the pool. The term “impermanent” refers to the fact that this loss can be mitigated if the prices of the assets return to their original ratio. However, if prices diverge significantly and you withdraw, the loss becomes realized, affecting your overall returns.