As an LP, you can balance impermanent loss risks against the potential rewards of trading fees and price appreciation by carefully choosing between:
1. No Exit
2. Exit & Hold
We’ll use a hypothetical scenario where 1 ETH = $2,200 and 1 USDC = $1 to illustrate the choices.
No Exit
Your liquidity stays in the ETH/USDC pool. No automatic withdrawal will occur, regardless of price fluctuations.
Why you might choose it?
1. You believe
$ETH will appreciate in the long run, and you’re comfortable remaining in the pool to earn trading fees.
2. You accept the risk of IL but expect that fee income may help offset it over time.
3. You prefer a “set it and forget it” approach keeping your position in the pool without worrying about short-term market swings.
Example:
Suppose
$ETH remains around $2,200, and you want to keep collecting fees indefinitely.
By selecting No Exit, your liquidity stays put, potentially earning fees if there’s significant trading activity in the ETH/USDC pool.
If ETH’s price spikes to $2,500 or dips to $1,900, you’ll remain in the pool, still subject to impermanent loss but also continuing to earn fees.
Exit & Hold
Withdraws liquidity while maintaining the pool ratio at withdrawal. It's ideal if you want to stay exposed to both assets in exactly the same proportions but out of the pool to pause IL.
Why you might choose it?
1. If you want to remain exposed to ETH (for upside potential) and keep some
$USDC (for stability), Exit & Hold preserves that allocation exactly as it was in the pool.
2. This is useful if you still believe in ETH’s long-term growth but want to temporarily step out of the liquidity pool (e.g., due to market uncertainty).
3. By withdrawing your exact pool ratio, you lock in the current proportion of ETH and USDC.
4. This can minimize further IL if you suspect a stronger move in ETH (either up or down) is coming soon, but still want to hold both assets.
Example:
$ETH price rises slightly
ETH goes from $2,200 to $2,250. You meet your threshold for a modest gain but don’t want to lose your position in ETH entirely.
Trigger: You use Exit & Hold, withdrawing both ETH and USDC in the same ratio you had in the pool.
Outcome: You keep exposure to further ETH gains (in the portion you withdrew), but you’re out of the pool and no longer subject to IL from ongoing rebalancing.
$ETH price dips
ETH dips to $2,100. You worry ETH could drop more, but you still want some ETH if it recovers quickly.
Trigger: Exit & Hold automatically executes at your lower price threshold, withdrawing your liquidity with the ETH/USDC ratio intact.
Outcome: You shield yourself from further IL and keep a mix of ETH and USDC that matches your long-term strategy.