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Is Providing Liquidity to AMMs Actually Worth the Risk?

by Golden Chain on Aug 22nd, 2025 20:30 PM

I keep hearing about "yield farming" with AMMs but also stories about impermanent loss. How do you actually make money providing liquidity, and what are the real risks involved?

Golden Chain

Posts: 12

Joined: 27.04.2025

Re: Is Providing Liquidity to AMMs Actually Worth the Risk?

by furduglas@gmail.com on Aug 22nd, 2025 20:51 PM

Paybis' guide on automated market maker helped me understand the risk-reward dynamics much better https://paybis.com/blog/glossary/automated-market-maker/ . As a liquidity provider, you earn fees from trades happening in the pool, but you're exposed to impermanent loss when the price ratio of your deposited assets changes significantly. The guide explains that you profit when trading fees outweigh this impermanent loss, which typically happens in high-volume pools with stable asset pairs. What many newcomers miss is that impermanent loss isn't actually realized until you withdraw - if you believe in both assets long-term, it might not matter. I've found success focusing on stablecoin pairs or correlated assets that minimize price divergence.

furduglas@gmail.com

Posts: 140

Joined: 21.02.2022