Can I lose money from impermanent loss?

Yes. If you withdraw after the two assets’ prices have moved apart, you get back less than you would have by simply holding them, unless the pool’s fees made up the difference. If prices return to where they started, the loss disappears.

Which pools have the lowest impermanent loss?

Pools of two assets that keep the same price, such as two dollar stablecoins. A pool of XRP and RLUSD is not one of them: it moves exactly as far as XRP moves against the dollar.

Do trading fees offset impermanent loss?

Sometimes. Compare the pool’s APY with the loss for the price moves you expect over the time you will stay in: a 1.5× move costs 2%, a 2× move 5.7%.

Insights

Impermanent Loss on XRPL Explained

When the two assets in a pool change price against each other, the pool sells the one that is rising and buys the one that is falling. A provider ends up with less than if they had simply held both: that shortfall is impermanent loss. Drag the curve to see what any move costs.

What a price move costs

One asset moves to 2.00× against the otherPool position vs holding: −5.72%

A 50/50 pool, before any trading fees. The loss depends only on the size of the move, and a fall to half costs exactly what a rise to double does.

A worked example

You deposit 1,000 XRP and 1,000 SOLO, equal in value, into a pool.

SOLO doubles against XRP. Traders buy SOLO from the pool until its price matches, leaving your share at about 1,414 XRP and 707 SOLO.

Had you held, you would have 1,000 XRP and 1,000 SOLO, now worth 3,000 XRP; the pool share is worth 2,828 XRP.

The difference, 5.7%, is the impermanent loss. If the pool’s fees earned you more than 5.7% meanwhile, you still came out ahead.

The numbers

One asset rises to	or falls to	Impermanent loss
1.25×	80% of its price	0.6%
1.5×	67% of its price	2.0%
2×	50% of its price	5.7%
3×	33% of its price	13.4%
5×	20% of its price	25.5%
10×	10% of its price	42.5%

Each row’s rise and fall cost the same; both are against simply holding the two assets.

Against what pools pay

A provider keeps a share of every trade the pool fills. The XRP/RLUSD pool, the largest RLUSD pool, paid 4.3% a year at last week’s pace. A year of that covers the loss from XRP rising to about 1.81× or falling to 55% of its price against the dollar; a bigger move costs more than the pool paid. A pool earns more when it is busy relative to its size, so compare its APY with the moves you expect while you are in (what every pool paid).

On the XRP Ledger a swap fills from the pool and the order books together, whichever is cheaper, so a pool earns only on the trades it actually fills (how pools work).

Questions

Can I lose money from impermanent loss?: Yes. If you withdraw after the two assets’ prices have moved apart, you get back less than you would have by simply holding them, unless the pool’s fees made up the difference. If prices return to where they started, the loss disappears.
Which pools have the lowest impermanent loss?: Pools of two assets that keep the same price, such as two dollar stablecoins. A pool of XRP and RLUSD is not one of them: it moves exactly as far as XRP moves against the dollar.
Do trading fees offset impermanent loss?: Sometimes. Compare the pool’s APY with the loss for the price moves you expect over the time you will stay in: a 1.5× move costs 2%, a 2× move 5.7%.