# 4.5 - Beating Impermanent Loss (IL)

**Impermanent Loss (IL)** is what happens when the two assets in your pool move in price relative to each other, and your LP position ends up worth **less than simply holding** those assets outside the pool which is a normal part of providing liquidity.

***

### How nest LP users beat IL

nest’s design gives you multiple ways to offset that cost where the more “full-stack” you go, the more your rewards can compound depending on your level of conviction. 

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### LEVEL 1 — Sell LP emissions (basic)

On Nest, **LPs earn NEST emissions** (if the pool is incentivised). LPs **do not earn trading fees**.

So emissions are the primary tool LPs use to offset:

* IL
* volatility
* early-market inefficiency

> Emissions are vote-directed and change by epoch; CLAMM must stay in-range to keep earning. 
> {% endstep %}

{% step %}

### LEVEL 2 — Lock + compound (adds fee value on top)

Locking emissions (or bought NEST) into **veNEST** which adds a second income stream that isn’t “inside the pool”:

* **100% of trading fee value is allocated to veNEST participants** 
* veNEST also controls where emissions go each epoch, so long-term lockers compound influence over incentives

> If you want to stay long-term aligned, **auto-max** feature exists to help maintain lock strength over time without constantly extending manually. 
> {% endstep %}

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### LEVEL 3 — HEV route (automated compounding + MEGAHYPE)

If you don’t want to vote manually every epoch, you can deposit veNEST into **HEV (HYPE Engine Vault)**:

* HEV **auto-votes** with your veNEST with the highest effieceny possible
* \~40% of nest fees route into the HYPE Engine, as a result the HEV stakers get **MEGAHYPE distributions** 
* MEGAHYPE is designed as **treasury-backed, compounding HYPE exposure** via NAV mechanics (no liquidation, leveraged HYPE) 

> IL is a market-making tax — Nest’s whole system is built so emissions + fee value + Engine compounding can outgrow it over time (when adoption + volume show up). 
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{% hint style="info" %}
See the next page for a full numerical break down of this effect
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