# Impermanent Loss: What the 2025 Paper Really Says

By [Alpha Feed](https://paragraph.com/@alpha-feed) · 2025-07-01

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![](https://storage.googleapis.com/papyrus_images/6c2ddcffa52d9bc33df3a421fef0c15429368f20443d0ec55fe6c6be4e082ebf.png)

Citation: Roman V. et al., The Impact of Exchange Fees on Impermanent Loss, Journal of the British Blockchain Association, May 2025.

**1\. Why This Matters**

APR banners scream “800 % yield,” yet liquidity providers keep under-performing a simple HODL. A new peer-reviewed study puts hard numbers behind the intuition: fees rarely offset impermanent loss (IL) once price volatility crosses a modest threshold. If you’re farming without hedging, this paper is required reading.

**2\. Data & Method**

![](https://storage.googleapis.com/papyrus_images/676f7f205d16dfdda4139840e909297d61d99d6ebd3cee4842426a4a0fbd9c26.png)

The authors rebuilt every position block-by-block, subtracting trade fees gained and IL incurred, then benchmarked against a hold-only wallet.

**3\. Core Results**

![\*Daily σ that flips a position from profit to loss.](https://storage.googleapis.com/papyrus_images/246ef33adb2914219d73f9f4dd04af244f5b6f7b4fe8430ee6b2865e21b12a9c.png)

\\\*Daily σ that flips a position from profit to loss.

`Headline: At the popular 0.3 % fee tier, a majority (55 %) of pools still lose money versus a passive HODL. Drop to 0.1 % and over 70 % of positions bleed.`

**4\. Why APR Banners Mislead**

APR assumes zero price drift. IL grows quadratically with divergence; fees grow only linearly with volume.

Fee revenue doesn’t scale with volatility. High volatility can crush LPs even as volumes spike—traders arbitrage, LPs pay the bill.

TVL growth dilutes share-of-fees. When mercenary capital piles in, your cut shrinks immediately.

**5\. Practical Takeaways**

Stable-pair pools aren’t safe. A 0.5 % peg wobble erased the fee cushion in 63 % of “stable-stable” positions.

Concentrated liquidity ≠ protection. Walk outside your tick band and IL doubles while fees drop to zero.

Dynamic-fee AMMs help (~18 % IL reduction). TraderJoe v2’s fee-elastic design cushioned IL by charging more during volatile spikes.

Hedged LPs outperform 2-to-1. LP + short-option overlay flipped the median PnL from –4.8 % to +5.3 %.

**6\. Quick IL Sanity Check**

Rule-of-thumb:

$$ If expected 30-day volatility × √30 > your fee tier$$,

odds are you’ll under-perform HODL.

Example: 1 % daily σ × √30 ≈ 5.5 %. If you’re in a 0.3 % fee pool, run.

**7\. Action Items for LPs**

Model IL before depositing. Tools: Dune dashboards, DeFiLlama’s IL simulator.

Prefer dynamic-fee or range-order AMMs. Higher fees during chaos = free hedge.

Hedge with options or perps. A 1-month ETH put can cap IL far cheaper than losses.

Rebalance aggressively. Static positions die; active managers captured 12 % higher net yield in the study.

**8\. TL;DR**

Liquidity ≠ free yield. Without hedging or volatility-neutral pools, most LPs subsidise traders. APR is marketing theatre.

Next up: A hands-on guide to hedging IL with options and tight ranges. Smash the 🔔 in Alpha Chat if you want it dropped next week.

[Alpha](https://t.me/alpha_feed) | [Chat](https://t.me/alpha_feed_chat)

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*Originally published on [Alpha Feed](https://paragraph.com/@alpha-feed/impermanent-loss-what-the-2025-paper-really-says)*