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Русский Impermanent loss, in plain terms
The name is bad: the loss is real and frequently permanent. What it describes is the gap between providing liquidity and simply holding the two assets.
The short version
- A pool rebalances automatically: as one asset rises, the pool sells it and holds more of the other.
- That means you end up with less of the winner and more of the loser than if you had just held both.
- The gap grows with how far the two prices diverge, and fee income is what offsets it.
- For two assets that should both be worth a dollar, divergence is tiny and so is the loss.
- If one of them depegs, the divergence is no longer tiny and the pool hands you the broken one.
What the pool does on your behalf
An automated market maker holds two assets and quotes a price from their ratio. When the market price of one rises, traders buy it from the pool until the pool price catches up. The pool has no view on this: it sells into the rise and buys into the fall, mechanically.
So a provider always ends up holding more of whichever asset performed worse. Compared against having held both and done nothing, that is a loss, and it is called impermanent only because it would reverse if the prices returned to where they started.
Why a dollar pair is different
If both assets are meant to be worth exactly one dollar, there is almost no divergence to suffer from. The ratio stays near one, the rebalancing is marginal, and swap fees accumulate against a loss that stays close to zero. This is the whole reason stablecoin pools exist as a conservative position.
It is also why the yield is modest. Low risk is priced, and a pair with nothing to go wrong pays you for very little, which is the fact to hold on to when a product built on such a pool quotes a high fixed rate.
The condition that removes the protection
A depeg is the scenario, and it is not theoretical: a major stablecoin traded well below a dollar for several days in 2023 after a banking failure touched its reserves. Any pool holding it sold the healthy side for the broken side the entire way down, automatically.
So "no impermanent loss on a stablecoin pair" is true while both pegs hold and false in exactly the moment it matters. Statements of that kind should always be read with the condition attached.
What this changes about reading TurboLoop
- The operator reports no impermanent loss because the named pool is a stablecoin pair: accurate, and conditional on both pegs.
- The same property that removes the loss also caps the yield such a pool can produce.
- That cap is the heart of the gap between a stablecoin pool and roughly 0.9% a day.