Liquidity (LP)
Last updated
Last updated
The reduced value is likely due to impermanent loss (IL). This occurs when the token price changes from your deposit price, with larger price changes causing greater losses. The value locked reflects this unrealized loss, a common risk in liquidity provision. For more details, see our blog post on impermanent loss. Assess potential risks carefully before participating.
This loss stems from impermanent loss (IL). Even within your set range, a price shift from your deposit point creates a loss upon removal. Narrower ranges boost capital efficiency but heighten sensitivity to price changes, amplifying potential losses. Learn more in our blog post on impermanent loss. Understand this inherent risk when providing liquidity.
When providing liquidity, you can view the potential impermanent loss (IL) you may incur if you remove your liquidity at any price point. This tool helps you assess risks based on price changes, enabling more informed decisions about adding or managing liquidity on the platform. For more detailed explanation about IL, refer to this blog post.
When your liquidity goes out of the price range you set, it will be automatically converted into a net position. The direction of the net position is determined based on which end of the price range it exceeds.
For example, let's consider the WETH/USDB pair with a price range set at 2000 - 4000. If the fair price of WETH reaches 4000 or goes above it, your liquidity will be converted into a short position. On the other hand, if the fair price hits 2000 or falls below it, your liquidity will be converted into a long position.
When you remove the liquidity you provided, it is automatically converted into a net position. In order to retrieve the margin, it is advisable to close the position in trade immediately after the liquidity removal.
When the liquidity you provide goes beyond the price range you set, it is automatically converted into a net position. In the event that the liquidation price is reached, your position will be liquidated. In such cases, it's important to note that you will not receive the margin back in your account.
