Is there loss (not IL) in an LP if one coin is a stable?

This should be very simple beginner thing to figure out but my head is aching!

Suppose I provide liquidity in a nonstable + stable LP, like say ETH + DAI pool on Uniswap. Suppose the price of ETH doubles or halves after a month.

If ETH halved in qty, DAI would double and I would be left with the same amount (measured in $) as before. Correct?

I am not asking about impermanent loss, but just loss on my original investment (measured in $).

Thanks!

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4 thoughts on “Is there loss (not IL) in an LP if one coin is a stable?”

  1. You can lose and gain money on your original investment by lp’ing.

    In this case if eth doubled your LP position would be greater than your initial investment. The impermanent part is that you’d be less in profit than if you just held the initial tokens you lp’d

    If eth halved you’d be down on your initial investment but less down than if you’d held the initial tokens.

    Play around with the
    [impermanent loss calculator](https://dailydefi.org/tools/impermanent-loss-calculator/) and you can see the total value of your investment in the text down the bottom. (Just keep one token as $1 to simulate a stable coin)

    Don’t get too caught up on impermanent loss not being ‘real’ it has a very direct effect on the value of your LP position.

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  2. > Is there loss (not IL) in an LP if one coin is a stable?

    You’re always exposed to impermanent loss if any of the coins change in price relative to when you provided liquidity.

    > If ETH halved in qty, DAI would double and I would be left with the same amount (measured in $) as before. Correct?

    No it won’t be the same amount, you’ll profit from the ETH price increase, but for such a significant price change you would have profited more if you simply held (that’s what IL is)

    Example:

    Let’s say you’re the only liquidity provider in a pool that has 1 ETH and 1000 USDC (1ETH = $1000). The total value of the pool is $2000

    Somebody swaps 1000 USDC for 0.50 ETH, now the pool holds 0.50 ETH and 2000 USDC (1 ETH = $4000). You are still the only LP but now the total value of the pool is $4000.

    If you had simply held the 1 ETH and 1000 USDC instead of providing liquidity your portfolio would be worth $5000. $1000 is the impermanent “loss” in this example.

    This example ignores the fees you would have earned from swaps.

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  3. There’s IL in that case but it’s much lesser compared to when you’re pooling two volatile assets. For example I have FUFU/BUSD pooled on impossible finance and also have BNB/CAKE pooled on pancakeswap, the IL from the former is much lesser compared to the later.

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