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When you provide liquidity to a liquidity pool, you add 2 different tokens and you get LP Token (liquidity pool tokens).

You can recover your 2 tokens amount when you give back your LP Tokens, decreasing the amount of liquidity of the pool. The only way to ensure the liquidity is to lock your LP Tokens during some time, with. Unicrypt, Mudra locker or similar.

Impermanent loss can happen if the pair price changes, because there will be more tokens in one side and less tokens in the other side of the pool.

Now: Imagine you put fooTokens and ETH in a liquidity pool, but you lock your LP Tokens. Could you loose most of your ETH (liquidity of one side) if there are big sales of fooTokens against ETH (fooToken/ETH price decreases), even if your LP Tokens are locked?

I think so, but a lead developer tells me that most of their ETH are protected because they have locked their LP Tokens with Mudra Locker. I think that if someone sells a big amount of fooTokens, he could get most of the ETH tokens provided as liquidity. Any idea to confirm?

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Locking up your liquidity tokens doesn't do anything except preventing you from exchanging your LP tokens back to the tokens from the pool.

Whiteboard crypto on Youtube has a nice video about how Liquidity pools work. When one of the tokens becomes more valuable then the other you will experience impermanent loss, which will become a permanent as soon as you exchange your LP tokens. You will receive less of the more valuable coin compared to the coin that went down.

The tokens in the pool will have to remain pretty much the same in value compared to each, for you not to occur any impermanent loss.

So for your example, if ETH becomes more valuable then the other coin, you will receive less Ethereum back when you exchange/return the LP and will have lost value.

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Yes, that is correct. If price of FOO is 0.000000000000000001 ETH, you only need very few gwei of ETH in the pool.

Pool that had 100 FOO and 1 ETH can become 10000000000000000000000000 FOO and 0.0000000000000001 ETH for the same LP value.

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