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So when proportions in the network are changing (f.e. due to price change on CEX and arbitrage traders or large orders directly on swaps) algo is changing price to compensate this. So if I get this correct fallowing scenario is possible on high volatile coins:

investment
1 ETH and 400 USDT (1 ETH is worth 400$ - total 800$)

ETH pumps x4 in short term ( lets say 4 weeks)

Balance:

0.25 ETH and 400 USDT (1 ETH is worth 1600$ - total 800$ + small profit from fees)

So if I evaluate my wallet in USD (i'm looking for USD gains) than i'm fine (but without LP i would have massive gains intead of few $ from fees) but if I'm a ETH hodler than i'm down 0.75 ETH that i wouldn't be if i just hodl my coins in wallet without engaging in liquidity pool.

Talking about dump instead of pump we get opposite situation.

This leads to the conclusion that liquidity provider is very exposed to price changes and is not as safe as it is presented to masses. Only low volatile pairs like USDT/DAI are safe, but you are exposed to USDT exit scam with whole your wallet (DAI will be dumped to USDT that will become worthless). So if any of 2 stable coins that you have will 0 whole your wallet will zero. That is extra risk that might not be worth taking for 10% annually that in most cases is the actual ROI.

Thanks for the article op. really well and detailed explanation which is much needed in these time where all the projects are hyping lending and liquidity pools

After short read it looks like impermanent loss is something that I've explained above without knowledge that it is it and has a separate name in the liquiditypools nomenclature:).

https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22

So risk from providing liquidity in case of high volatility. Price dump without recover.