The short version
Impermanent loss (IL) is the gap between holding two tokens in an AMM position versus simply holding those same tokens in your wallet. It is "impermanent" only if price returns to your entry — otherwise it crystallizes when you exit.
Why concentrated liquidity changes the math
In Uniswap v3-style pools you choose a price range. Inside the range, your inventory continuously rebalances like a classic AMM. Outside the range, you hold only one asset — like being fully converted.
That means: - Tighter ranges earn more fees per dollar when price stays inside, but IL (and out-of-range time) rises if price trends. - Wider ranges behave closer to v2: lower fee APR, gentler inventory swings.
A practical checklist
- Estimate the move you actually expect over your hold period (not hopium).
- Compare **fees earned** against **IL vs HODL** under that move — this is DefiLPKit's Net Yield Truth Label.
- Add gas for mint / rebalance / collect. Small positions die to gas first.
Common myth
"High fee tier = free money." Fee tier only helps if volume trades *through your ticks*. Empty ranges earn zero.
Takeaway
IL is not a bug — it is the cost of providing inventory. Fees are the wage. Your job is to pick ranges where the wage exceeds the cost under realistic moves.