It is possible to suffer an impermanent loss if the value of tokens stored in an algorithmically balanced liquidity pool declines in relation to assets traded on the open market as a result of price fluctuation. The loss is referred to as ‘impermanent’ since the tokens’ original value may be recovered if the liquidity pool is brought back into equilibrium.
A permanent loss is one that cannot be recovered. For instance, if you use a margin position with leverage and the value of the assets allocated to your position drops too much, so that there is insufficient collateral to cover your debt, you suffer a permanent loss.
Impermanent loss is a kind of unavoidable risk that comes with the liquidity pool model. Since 50% of your assets are committed to automated algorithms, you have to accept the potential for impermanent loss. This is no different than any other form of casino gambling: if you’re playing roulette, the most a bettor can lose in a single period is 100% of his commitment.