Impermanent Loss Explained Using a Vending Machine Analogy

Imagine placing $100 worth of TON and $100 worth of USDT into a vending machine that automatically keeps both assets balanced.
As the price of TON changes, the machine constantly adjusts how much TON and USDT it holds. If TON rises significantly, the machine sells some of your TON in exchange for more USDT to maintain the balance.
When you eventually take your funds out, you'll own less TON and more USDT than you started with.
If you had simply held your TON in your wallet instead of providing liquidity, you would have benefited from the full price increase. The difference between what you earned as a liquidity provider and what you would have earned by holding your tokens is called Impermanent Loss.
Why is it called Impermanent Loss?
It is considered impermanent because it only becomes a real loss if you withdraw your liquidity while the token prices remain far apart. If the prices move back toward where they started, the loss can shrink or even disappear.
Also, liquidity providers often earn swap fees and farming rewards. For example, if your impermanent loss is 5% but you earn 20% in rewards, you're still up 15% overall.
Simple Rules for Beginners
🟢 The safest option is providing liquidity to two stablecoins such as USDT and USDC. Since both assets are designed to maintain similar values, impermanent loss is close to zero.
🟡 A moderate risk option is pairing a volatile token with a stablecoin, such as STON and USDT. Farming rewards can often offset the risk, although large price swings can increase impermanent loss.
🔴 The highest risk comes from pairing two volatile tokens. If one token rises while the other falls, impermanent loss can grow much more quickly.
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