Impermanent loss is poorly named, and the name causes real misallocation of capital. The "impermanent" qualifier implies that losses revert when prices return to the entry ratio. This is technically true for a position that remains open and untouched — but it obscures three things that matter more:
- IL is path-independent but fee income is path-dependent. Two price trajectories that end at the same ratio generate identical IL but wildly different fee revenue, because fees accrue proportional to volume routed through the pool at each tick.
- Any interaction that changes the position — partial withdrawal, rebalancing, compounding rewards into a different pool — crystallizes the loss. At that point it is simply loss.
- For concentrated liquidity positions (Uniswap v3, Ambient, Maverick), going out of range stops fee accrual entirely while IL continues to compound. The position becomes a one-sided bag with zero income.
The useful mental model: IL is a cost of providing a service (two-sided liquidity). Fees are the revenue. The question is never "is there IL" — it is whether fees exceed IL on a risk-adjusted basis over your actual holding period. Most LPs do not rigorously answer this.