Liquidity provision and changing asset value

Earning fees is only one side of providing liquidity. Compare the pool position with simply holding the same starting assets.

A liquidity provider contributes assets to a pool and receives a claim governed by its rules. As swaps change reserves, the composition of that claim changes. Fee income is only one part of the result; token price movement and withdrawal costs also matter.

In a simple full-range two-asset pool, divergence loss compares the pool's value with holding the original assets outside it. It can persist when you exit despite the common name 'impermanent loss'. Concentrated positions have different exposure and may stop earning fees outside their active range.

Compare like with like: same starting assets, same valuation currency, same end time and all costs. A positive money return can still be worse than holding. Conversely, fees may offset some divergence, but cannot be assumed to do so in advance.