Impermanent loss on Meteora, explained in plain words

The idea in one example

You put $1,000 into a full-range pool: 500 TOKEN at $1 and 500 USDC. Then TOKEN doubles to $2. Traders who bought TOKEN on the way up paid with USDC, so your share of the pool now holds about 353.6 TOKEN and 707.1 USDC, worth $1,414. Had you just held, you'd have $1,500. The $86 difference, 5.7%, is impermanent loss. It works the same way down: if TOKEN halves, the pool gives you about $707 against $750 for holding.

This follows from the constant-product rule most pools use, where the two token amounts multiplied together stay the same as people trade: the more people buy one token, the pricier it gets in the pool.^[1] Meteora's own LP guide warns that you may not get back the same amounts you put in.^[1]

Why “impermanent”?

If the price comes back to where you started, the gap closes and the loss disappears. It only becomes real when you withdraw while the price is somewhere else.

On DLMM: bigger fees, sharper edges

A DLMM position packs your tokens into fewer price bins. While the price moves inside them, each bin you pass sells one token for the other, so the same effect happens faster. Once the price leaves your range entirely, the position holds only one token and stops earning until the price returns or you move it.^[2]

An illustrative example, simplified by ignoring fees and the active bin's own mix, and worked out by us rather than quoted: you put 500 TOKEN and 500 USDC into a 69-bin Spot position with a 25 bps bin step, around a price of $1. That range runs from about $0.92 to $1.09. If TOKEN rises to $1.20, all 500 TOKEN were sold on the way up for about 522 USDC: you hold about 1,022 USDC, against $1,100 for holding, about 7% behind before fees. If TOKEN falls to $0.85, your USDC bought about 522 TOKEN on the way down: you hold about 1,022 TOKEN worth $869, against $925 for holding, about 6% behind.

What pays you back: fees

LPs earn most of every trading fee: 90% in a standard DLMM pool, 80% in DAMM v2.^[3] DLMM's variable fee rises when the market moves fast, which is exactly when impermanent loss grows.^[5] A position is only ahead if the fees it collected are bigger than the gap versus holding.

How LPs manage it

• Match the range to the token. Wider ranges for jumpy tokens, narrow ones for steady pairs.^[4]
• Check and adjust. Move or widen a position when the market changes; the app's Rebalance button re-centres your range in one click.^[2][6]
• Pick pairs you're happy to end up holding. An LP position in a falling token ends up mostly in that token.
• Beware of scam tokens. A token that goes to zero turns the whole position into it; run the checks in How to check a token before you LP.^[7]