Impermanent loss: How not to miss out on profits on Uniswap

The world of DeFi promises high returns, passive income, and full control over your assets. One of the most popular tools for that is Uniswap — a decentralised exchange where you can earn by providing liquidity. But even this system has its traps. One of the key concepts you absolutely need to understand is impermanent loss.

Catch up here if you haven’t read our first DeFi guides yet:
What is Uniswap and how it works
How to add liquidity and earn from fees

What is impermanent loss — explained in plain words

Let’s say you add liquidity to the EXM/USDT pool — $500 worth of each asset. All good so far. But a few days later, EXM’s price suddenly surges. What happens next?

The AMM (automated market maker) rebalances the pool by selling some of your EXM for USDT to maintain the 50/50 ratio. So when you go to withdraw your funds, you’ll have fewer EXM tokens than you started with. Sure, you’ve got more dollars overall, but less profit than if you had simply held onto EXM in your wallet.

That’s impermanent loss in a nutshell — a “missed opportunity” caused by price movement and the way AMMs work. Technically, you’re still in profit, but less so than you could’ve been. The loss is “impermanent” until you withdraw (since the situation can return), but it becomes very real the moment you do.

When impermanent loss is the worst

The bigger the price swing of one of the assets in the pair, the higher the risk of impermanent loss. Pools with volatile tokens, such as DOGE/USDT, are hit the hardest.

On the other hand, stablecoin pairs such as USDT/USDC rarely see significant losses, simply because both assets tend to move very little in price.

How to protect yourself: Hedging with EXMO Margin

One of the smartest ways to reduce impermanent loss is to hedge your exposure using margin trading.

Here’s how it works:
▪️You add liquidity to the EXM/USDT pool on Uniswap.
▪️At the same time, you open a short position on EXM using EXMO Margin.
▪️If EXM rises in price, you lose some liquidity, but gain from the short. If EXM drops, you lose on the short, but benefit from the pool.

Important: you need to close your short in time to lock in the hedging effect. Timing is crucial here, and this strategy works best on relatively small price swings, so don’t hesitate too long.

In the end, this lets you balance out the risks. It’s no longer just DeFi — it’s smart capital management.

Extra tips to reduce risk:
Hold liquidity long-term — especially when APY is high. For example, EXMO Coin offers up to 30% annually, which can offset impermanent loss.
Factor in trading fees — you earn a share of every swap. The EXM/USDT pool, for instance, offers a solid 0.3% fee per trade.
Know your portfolio — if you already hold a lot of EXM on EXMO, consider moving some to Uniswap for better returns.

Impermanent loss isn’t a dealbreaker

Yes, impermanent loss is a part of playing in the DeFi game. But once you understand how and why it occurs, you can play smarter.

Already know how Uniswap works and how to earn from liquidity? Then you’re ready to take it a step further.