Risks

Impermanent Loss

Impermanent loss occurs when the exchange rate of the two tokens in a pool changes after liquidity is deposited. The greater the price divergence from the initially deposited exchange rate, the larger the impermanent loss. This loss is "impermanent" because it only becomes permanent when liquidity is withdrawn — if exchange rates return to the original ratio, the loss disappears.

Concentrated liquidity positions experience amplified impermanent loss compared to full-range positions due to the concentrated capital exposure. Narrow price ranges magnify both fee earnings and impermanent loss effects.

Example

• Deposit: 1,000 WEMIX + 1,000 stWEMIX at 1:1 ratio (total value: $2,000)

• After 20% WEMIX price increase: Position converts to ~1,095 WEMIX + 913 stWEMIX

• Value if held individually: $2,200

• Value in pool: $2,182

• Impermanent loss: $18 (~0.8%)

• If range was concentrated (±10%), IL amplifies to ~$30-40 (~1.5-2%)

Earned rewards may offset impermanent loss over time, but significant price movements can result in net losses even with reward accumulation.

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Out-of-Range Positions

When the exchange rate moves outside the selected range, the position stops earning fees and becomes fully composed of one token. For example, if the price rises above the upper bound, the position converts entirely to the lower-priced token.

Out-of-range positions require rebalancing by removing liquidity and creating a new position with an updated price range. Frequent rebalancing incurs additional gas costs and transaction fees that reduce overall profitability, particularly for narrow-range strategies.

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Smart Contract and Market Risks

Liquidity pools interact with smart contracts that carry inherent risks including bugs, exploits, or vulnerabilities. While WEMIX.Fi contracts undergo security audits (see Security & Audits), no system is entirely risk-free. Additionally, market volatility can cause rapid price movements that result in unexpected impermanent loss or require urgent position adjustments.

For detailed troubleshooting related to liquidity provision errors, refer to the Support → Help Center.

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Related Documentation:

• Understand how swaps use liquidity pools: Swap

• Track liquidity positions: Portfolio

• Learn about security measures: Security & Audits