What Is Impermanent Loss?

Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to when they were deposited, resulting in a loss relative to simply holding the tokens. The loss becomes permanent only when the liquidity provider withdraws. Whales managing large DeFi positions must account for impermanent loss risk, and their decisions to add or remove liquidity based on this risk are visible as on-chain transactions. Monitoring whale exits from liquidity pools on Sonar can indicate that large players expect significant price divergence between paired tokens.