If you have ever earned yield in DeFi, you have probably heard the term impermanent loss. It sounds technical and slightly threatening, and most explanations either gloss over it or bury it in math. This article does neither. By the end of it you will understand exactly what impermanent loss is, how it applies specifically to providing liquidity on OneSwap, what fees you earn in return, and how to think about balancing your position so the numbers actually work in your favor.
What it means to provide liquidity
When you provide liquidity on OneSwap, you are depositing two tokens into a pool at the same time. The pool currently supports 6 pairs including CC and USDCx. You cannot deposit just one, you deposit both, in a ratio that matches the pool's current price. If the pool is priced at 1 CC equals 1.60 USDCx and you want to deposit 1,000 CC, you need to deposit 1,600 USDCx alongside it.
In return, you receive an LP position. Your LP balance represents your proportional ownership of that pool. If the pool holds 100,000 CC and 160,000 USDCx total and you deposited 1,000 CC and 1,600 USDCx, you own 1% of the pool.
Every swap that passes through the pool generates a fee. The total swap fee on OneSwap is 0.3% on the input amount. Of that, 75% goes directly to liquidity providers and 25 percent goes to the platform. That means liquidity providers earn 0.225% of every swap that passes through their pool, proportional to their share. That fee does not appear as a separate claimable balance. It accumulates directly into the pool's reserves which means your 1% ownership now represents slightly more CC and USDCx than it did before the swap. When you eventually withdraw, you receive your original deposit plus everything that has accumulated. There is no harvesting step, no claim button, you simply withdraw when you are ready and receive whatever your share of the pool is worth at that moment.
What impermanent loss actually is
Here is the part that trips most people up.
When you deposit into a liquidity pool, you are not just holding two tokens. You are holding a position that automatically rebalances between those two tokens as their price ratio changes. The pool does this through a constant product formula: the amount of CC in the pool multiplied by the amount of USDCx in the pool must always equal the same constant. When someone swaps CC for USDCx, the CC balance goes up, the USDCx balance goes down, and the price adjusts accordingly.
That rebalancing is what causes impermanent loss.
Say you deposit when CC is priced at 1.60 USDCx. The pool holds 1,000 CC and 1,600 USDCx. Now the price of CC doubles to 3.20 USDCx. People are buying CC from the pool because it is cheaper there than on external markets. As they buy CC out of the pool, the pool's CC balance decreases and its USDCx balance increases until the pool price catches up to the market price.
When you withdraw at that point, you no longer have the same 1,000 CC and 1,600 USDCx you deposited. The rebalancing has shifted your position. You have fewer CC and more USDCx than you started with. And because CC is now worth more, holding the original amounts would have been more profitable than providing liquidity.
That difference, between what you would have had if you had simply held the tokens versus what you actually have after providing liquidity, is impermanent loss.
Here is the concrete math. If CC doubles in price:
If you had held: 1,000 CC now worth 3,200 USDCx, plus 1,600 USDCx. Total: 4,800 USDCx.
If you provided liquidity: the constant product formula means your withdrawal would give you approximately 707 CC and 2,263 USDCx. At the new price, that is 707 times 3.20 plus 2,263, which equals roughly 4,528 USDCx.
The difference, approximately 272 USDCx in this example, is the impermanent loss. It is called impermanent because if the price returns to where it started, the loss disappears. If you withdraw while the price has moved, the loss is realized.
The relationship between price movement and impermanent loss is not linear. A 25% price change in either direction produces roughly 0.6 percent impermanent loss. A 100% price change produces roughly 5.7% loss. A 400% price change produces roughly 20% loss. The more the price diverges from your entry ratio, the larger the loss becomes.
How fees offset impermanent loss
This is where the calculus of liquidity provision actually lives. Impermanent loss is a cost, fees are the return. Whether providing liquidity is profitable depends entirely on whether the fees you earn exceed the impermanent loss you experience.
On OneSwap, liquidity providers earn 0.225% of every swap that passes through their pool. The math:
Your earnings per swap = 0.225% x swap amount x (your LP balance / total LP supply)
Using the example from OneSwap's documentation: if your LP balance is 100 out of a total supply of 10,000, your pool share is 1 percent. If 500,000 CC in swap volume passes through in a day, LP fees generated are 1,125 CC. Your 1% share earns 11.25 CC that day automatically.
Over 30 days, with 2,000,000 CC in total monthly volume, the pool generates 4,500 CC worth of fees. Your 1% share earns approximately 45 CC worth of fees. Whether that offsets your impermanent loss depends on how much the price has moved during that period.
The general principle: pools with high trading volume and stable price ratios between the two tokens are the best environments for liquidity provision. Stable pairs experience less impermanent loss because the price ratio does not diverge much, while still generating fees from trading activity. Volatile pairs generate more impermanent loss risk and require correspondingly higher fee income to be worth holding.
How to balance a pool position on OneSwap
Balancing a pool position is about managing the relationship between your entry ratio, the current pool ratio, and your expectations about where prices are going.
Before you deposit, check the current pool ratio on oneswap.cc. The required second token amount is calculated automatically for you based on current reserves. You deposit both tokens in that exact ratio within the same 24 hour window, using the same transfer reference for both deposits and from the same Canton party that created the intent. If only one token arrives before the window closes, it is refunded automatically.
Once you are in the pool, your position rebalances automatically with every swap. You do not need to do anything to maintain it. The pool formula handles rebalancing continuously.
The question of when to withdraw and rebalance your position is a judgment call based on three things: how much the price has moved from your entry, how much you have earned in fees, and whether you believe the price will revert or continue moving in the same direction.
If CC has risen significantly since you entered, you have likely experienced some impermanent loss. If you believe the price will revert to your entry level, staying in the pool means the loss remains impermanent and may disappear entirely. If you believe the price will continue rising, withdrawing and redepositing at the new ratio locks in the current state of your position and resets your entry point to the current price.
If you want to reduce your exposure without fully exiting, OneSwap supports partial withdrawals. You can withdraw a portion of your LP balance while keeping the rest earning fees. Your withdrawal receives your proportional share of both underlying tokens plus all accumulated fees at the time of withdrawal. There is no separate fee claim. Everything comes out together. Withdrawn tokens go directly to your destination Canton party without routing through a platform wallet.
A few practical anchors before you deposit. Check the APR shown for the pool on oneswap.cc. This is calculated from the past seven days of fee activity relative to pool value and shows you the annualized return at current volume levels. A 0% APR means no swaps in the past seven days and no fee income to offset impermanent loss. A 20% APR means high volume and meaningful fee generation. APR reflects past activity and is not a guarantee of future returns, but it gives you a realistic baseline for whether the math is working.
Start with a small deposit to understand the flow before committing larger amounts. The mechanics of the intent based deposit system are straightforward but worth testing at small scale first. Monitor your positions through the View Positions tab. Your LP balance and its current underlying value in CC and USDCx are visible in real time. Watching how that value moves relative to what you deposited gives you a concrete sense of whether fees are outpacing price divergence in your specific pool.
For developers building on OneSwap
If you are building an application that integrates OneSwap via the SDK, you earn a share of every swap that flows through your integration. The developer share comes from the platform's 0.075 percent portion and amounts to 0.0375 percent of every swap your users make.
Developer earnings accumulate automatically and are collected through the wallet-authenticated OneSwap developer portal. Each collection transfers directly to the destination Canton party you specify. There is no minimum volume requirement and earnings begin from the first swap.
The honest picture
Liquidity provision on OneSwap is not passive income without tradeoffs. Impermanent loss is real. It can exceed fee earnings if prices move dramatically and do not revert. The 0.225 percent LP fee is the mechanism that makes it worthwhile, but it only works when volume is high enough relative to price volatility.
The pools that make the most sense for most liquidity providers are ones where you have a view on price stability, where volume is meaningful, and where you are comfortable holding both underlying tokens regardless of what happens to the ratio between them.
Go to oneswap.cc, connect your wallet, and review current pool APR and volume before depositing. The information you need to make the decision is there before you commit.