# Impermanent Loss Protection

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**TLDR:** **$HEX1** is protected against IL because HEX collateral tokens are locked in the form of T-SHARES, unredeemable before maturity.
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## What is Impermanent Loss

Impermanent loss (IL) describes the loss liquidity providers experience due to price divergence.

In simple terms, IL happens when you provide liquidity to a liquidity pool, and the price of your deposited assets (LP) changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.

## How $HEX1 is protected

There are multiple ways to protect LPs from IL. Commonly, there are three major tactics: 

1. **Lock liquidity** in farming so that LPs don't remove one of the pairs. 
2. **Create incentives** (staking, farms) that distribute inflation or fees to LPs in order to keep pairs afloat. 
3. **Keep the peg,** since every time there is a discount on the price of $HEX1 it means there is a direct discount on the underlying collateral, Hex. 

**$HEX1** has all three incentive mechanics embedded in the protocol. First, each token represents a future HEX payment, therefore it has an embedded yield. Additionally, liquidity is locked in farming to earn HEXIT. Finally, each $1 worth of $HEX1 = $1 worth of $HEX, therefore if there is a de-peg you can buy future Hex at a discount. 


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