What Is Impermanent Loss on Stock Tokens?
Impermanent loss is the cost of automatic rebalancing. On a tokenized equity that gaps at the open, it behaves differently than on a crypto pair.
Impermanent loss is what you give up by providing liquidity instead of just holding. It is not a fee, nobody charges it, and it is only "impermanent" in the narrow sense that it reverses if price returns to where you started.
On tokenized equities it has a specific shape worth understanding before you put capital in.
Where does it come from?
A pool always sells the asset that is going up and buys the one going down. That is the mechanism working correctly — it is how the pool stays balanced — but it means an LP is systematically on the wrong side of a trend.
| NVDA move | Holding | LPing in NVDA/USDG |
|---|---|---|
| +50% | Full upside | Less NVDA, more USDG — partial upside |
| −50% | Full downside | More NVDA, less USDG — worse downside |
| Round trip | Unchanged | Unchanged, plus the fees earned |
Fees are the compensation. The question is always whether they exceed the loss.
Why is it different on a tokenized equity?
Gaps hit harder than drift. Impermanent loss depends on how far price moves, not how it got there. An asset that gaps 8% at the open inflicts the same loss as one that drifts 8% over a week — but the drifting asset paid you fees the whole way, and the gapping one paid you nothing during the jump.
That is the core asymmetry. Equities gap. Their tokens gap against a pool that was quoting a stale price seconds earlier.
Arbitrageurs collect the difference. When the real market reopens, someone trades your pool back to fair value and keeps the spread. That transfer is exactly your impermanent loss, and it is realised in a handful of blocks at the open rather than gradually.
Does concentration make it worse?
Yes, meaningfully. A concentrated range amplifies both the fees and the rebalancing — you hold a more extreme mix at the edges of your range. And when price exits, you are left entirely in the losing side, earning nothing until it returns.
Sizing that trade-off is covered in Concentrated Liquidity on Tokenized Equities.
How do you know if you are ahead?
Compare against simply holding both tokens in the same starting proportion. If fees plus emissions exceed the divergence cost, LPing won. Otherwise holding would have been better.
The two halves of that income, per pool, are broken out in How to Earn Yield on Tokenized Stocks.
Where Alandale fits
Alandale's dynamic fee is directly aimed at this problem: the rate rises with volatility, which is when impermanent loss is being inflicted. A fixed-tier pool charges the same 0.05% during a calm afternoon and a gapping open.
Lockers also receive 100% of trading fees, so the compensation side of the equation is not diluted by a protocol cut.
None of that eliminates impermanent loss — nothing does. What it changes is how much you are paid for taking it, and who ends up with that payment.