What is impermanent loss when Staking Crypto?
Staking crypto pairs refer to the practice of simultaneously staking two different cryptocurrencies in a single pool or validator. For example, you might choose to stake both ETH and EOS in the same pool or validator in order to earn rewards in both cryptocurrencies.
One potential benefit of staking crypto pairs is that it allows you to diversify your portfolio and potentially earn higher rewards by staking multiple cryptocurrencies at once. However, there are also risks involved with staking crypto pairs, including the risk of impermanent loss.
Impermanent loss is a phenomenon that can occur when the value of one of the cryptocurrencies in a staked pair changes significantly in relation to the other. This can result in a loss of value for the staked assets, even if the overall value of the pair increases.
For example, imagine that you are staking a pair of ETH and EOS in a 1:1 ratio. If the value of ETH increases significantly relative to EOS, you may see a decrease in the overall value of your staked pair due to impermanent loss, even if the value of both ETH and EOS has increased overall.
To mitigate the risk of impermanent loss, it is important to carefully consider the cryptocurrencies you choose to stake and to regularly monitor the value of your staked assets. It may also be helpful to diversify your staked pairs in order to reduce the impact of any potential losses.