General Risks
One common concept in DeFi is impermanent loss, also referred to as divergence loss. While StratiFi vaults do not use risky strategies like liquidity provision (LP) in AMMs, this concept can still affect user perception when the deposited asset changes significantly in price.
What is Impermanent Loss?
Impermanent loss occurs when the value of the asset you deposited changes compared to when you deposited it, and this change negatively affects your final withdrawal amount, even if yield was earned.
It's called impermanent because the loss is only realized if you withdraw when the asset price has diverged from your original deposit price.
Example
Let’s break it down with a real-world scenario:
| Scenario | Value |
|---|---|
| Asset | ETH |
| Price at Deposit | $2,400 |
| Price at Withdrawal | $2,000 |
| Initial Deposit | 1 ETH |
| Vault Yield Gained | +60% (Your vault balance grew to 1.6 ETH) |
So, your vault grew from 1 ETH → 1.6 ETH, which seems great.
BUT — the market price of ETH dropped from $2,400 → $2,000.
Let’s check the math:
- Value at deposit:
1 ETH * $2,400 = $2,400 - Value at withdrawal:
1.6 ETH * $2,000 = $3,200
So you made $800 in profit? Yes — in absolute terms.
But if ETH had simply stayed at $2,400 and you had held your ETH instead of depositing it, your 1 ETH would still be worth $2,400, and 1.6 ETH would be $3,840.
So you missed out on $3,840 - $3,200 = $640.
This difference is what we call divergence loss.
Why did this happen?
Because while your vault grew in yield, the market price of ETH dropped, and that drop had a bigger impact than the gains. This is a natural effect of holding volatile assets—even if your strategy is generating consistent yield.
It's not a problem with the StratiFi vault itself, but rather a result of market price movement during your deposit period.
Good to Know
- Impermanent loss is most noticeable with volatile assets like ETH, not stablecoins like USDC.
- StratiFi does not use LP positions or delta-neutral strategies that amplify this risk.
- Holding in a vault helps offset price drops over time with autocompounded yield.
- You can reduce the risk of impermanent loss by depositing stablecoins, which are less price-sensitive.
Final Tip
Don’t judge your vault performance only by how much your asset number grew. Always consider the market price of your token at entry vs exit.
StratiFi aims to maximize yield, but market prices will always play a role in how much your final return is worth in dollar terms.