> For the complete documentation index, see [llms.txt](https://docs.pawtato.gg/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.pawtato.gg/pawtato-land/gameplay/resources/liquidity-rewards/lp-risks.md).

# LP Risks

⚠️ Providing Liquidity Comes with Risks ⚠️

<figure><img src="https://665930138-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FMhRoTVSVhyZUI6BeRikY%2Fuploads%2FOMOurRjp0Pv1wVRE62cU%2FRisks.jpg?alt=media&amp;token=00ccacae-6ea2-4c7d-9fc5-b77ff76fa627" alt=""><figcaption></figcaption></figure>

Before opening a position in liquidity pools, it’s important to understand the potential risks involved. These help you make smarter and more informed decisions when managing your assets.

#### 1. **Price Volatility**

* Both the **resource** and **token** values can fluctuate in the market.
* When prices move, the total value of your position in the pool may **increase or decrease** compared to simply holding the assets separately.

**How this affects you:**

If the token (e.g., $SUI) rises sharply while the paired resource (e.g., $WOOD) remains stable or drops, the pool automatically rebalances, meaning you’ll end up holding **more of the lower-value asset** and **less of the higher-value one.**

#### 2. **Impermanent Loss**

* When one asset in the pair changes price significantly relative to the other, your pool position adjusts automatically.
* This can result in **impermanent loss**, which is a potential loss compared to holding the assets individually.

**How this affects you:**

If $SUI’s price doubles while $STONE stays the same, you’ll hold more $STONE and less $SUI.

When you withdraw, your total value in USD may be lower than if you just held both outside the pool, even though you’re earning **rewards** from farming.

#### 3. **Out-of-Range Risk (for Concentrated Liquidity Pools)**

* If the price moves outside your chosen range, your position becomes **100% one asset**, stopping fee earnings until prices return within range.

**How this affects you:**

For example, if you provided liquidity for **$WATER/$SUI** within a specific range and $SUI suddenly spikes, your position may end up entirely in **$WATER**, exposing you fully to its value changes.

💡**Tip**: High APRs can be attractive, but market volatility can affect your real returns.