How yield farming works ?

  So , basically when you use a yield farm you are a liquidity provider for the specific trading pair of that pool - let's say XPR and LOAN.

Your tokens are loked in a liquidity pool , where for the purpose of being used for trading ( as trading pair ) they have to be equal in value.

Example :
$100 XPR and $100 LOAN

Well , so far so good , but what the " impermanent loss" is ?

Because in the pool created with your tokens , XPR and LOAN have to be equal in value , if one of them start going up in price against the other , part of it will be converted (sold) for the other , in order to keep the equal value between XPR and LOAN in your liquidity pool.
That will lead to impermanent loss .

I will try to explain it :

You have $100 XPR and $100 LOAN , making a liquidity pool and start farming.

If LOAN goes up in price 50% against XPR , the pool will start selling part of your LOAN tokens for XPR ,as soon as there is any price difference . It will sell just enough to keep the equal value .

That means now instead of having $150 LOAN (after the 50% increased price ) and $100 XPR = $250 in total , you will have something like $115 LOAN and $115 XPR = 230 in total. ( just as an example the numbers could be different )

That makes $20 impermanent loss .

So the main point is that when one of the tokens in the liquidity pool is going up in price against the other , the liquidity pool will be selling part of it for the other , to keep the equal value .