Pool Composition Drift

Pool composition drift is the gradual change in the ratio of assets held within a liquidity pool due to continuous trading activity and price movements. As traders swap assets, they remove one token and add another, altering the balance from the initial state.

This drift is the physical manifestation of impermanent loss and market sentiment. If the drift is extreme, the pool may become unbalanced, leading to higher slippage for subsequent traders.

Protocol designers often implement incentives to encourage rebalancing. Monitoring this drift is a key metric for liquidity providers assessing their portfolio health.