Can I lose money providing liquidity?

Yes, and not only through a hack. The mechanical cost has a misleading name: impermanent loss.

Providing liquidity means supplying two assets to a pool that others trade against, and collecting a share of the fees. The fees are real. So is a cost most explanations skip.

When the prices of the two assets diverge, the pool automatically ends up holding more of the one that fell and less of the one that rose. Withdraw at that point and you have less value than if you had simply held both — even though nothing was stolen and nothing broke.

The name "impermanent" is unfortunate: it only reverses if prices return to where they started, and it becomes entirely permanent the moment you withdraw.

On top of that sit the ordinary risks: a flaw in the pool's contract, and a token in the pair that turns out to be worthless.

Liquidity pools works through the arithmetic with an example.

Last checked 19 Oct 2026.