Impermanent loss is a concept that primarily applies to decentralized exchanges (DEXs) and liquidity providers in the world of cryptocurrency. To explain it to a non-crypto person, let's use a simplified analogy.

Imagine you have two investment options: investing in a cryptocurrency directly or providing liquidity to a decentralized exchange. Instead of directly buying the cryptocurrency, you decide to provide liquidity on the exchange.

When you provide liquidity, you essentially deposit an equal value of two different cryptocurrencies into a liquidity pool. For example, let's say you deposit $1,000 worth of cryptocurrency A and $1,000 worth of cryptocurrency B into the pool.

The liquidity pool allows users to trade between cryptocurrency A and B. When someone wants to make a trade, they pay a fee that is proportionally distributed to the liquidity providers based on their share of the pool. So, as a liquidity provider, you earn a portion of the trading fees.

However, impermanent loss occurs when the value of the two cryptocurrencies in the pool changes. If the price of cryptocurrency A increases compared to cryptocurrency B, the pool becomes imbalanced. This means that the value of cryptocurrency A in the pool would be higher than the value of cryptocurrency B.

As a result, when you decide to withdraw your funds from the pool, you may end up with fewer total dollars compared to if you had just held onto your initial investments in cryptocurrency A and B separately. This is the "impermanent" part of impermanent loss because the loss is not permanent unless you withdraw your funds from the pool.

In other words, impermanent loss happens when the relative value of the two cryptocurrencies in the pool changes, leading to a decrease in the overall value of your deposited assets. It occurs because you're exposed to the price volatility of both cryptocurrencies in the pool.

It's important to note that impermanent loss affects liquidity providers, not regular traders. Traders can still benefit from the liquidity provided by the pool but aren't subject to impermanent loss because they don't share in the pool's fees or the potential value change of the deposited assets.

Keep in mind that this is a simplified explanation, and impermanent loss can be influenced by various factors, such as trading volume, volatility, and the specific mechanisms of the DEX being used