A liquidity pool position can generate trading fees while still underperforming a simple hold strategy for the same underlying tokens. The mechanism driving this divergence is impermanent loss: as asset prices move, automated market makers rebalance the pool's composition by selling appreciating assets and buying depreciating ones, altering the holder's exposure compared to the original portfolio. In a hypothetical example cited, an initial $200 invested in a liquidity pool grew to $400 before accounting for earned fees, whereas simply holding the equivalent token allocation would have yielded $500 over the same period. The gap illustrates how price-driven rebalancing erodes gains relative to passive ownership, even when fee income partially offsets the shortfall.