Impermanent Loss Calculator
Calculate potential impermanent loss from providing liquidity to AMM pools. Compare LP returns against simply holding the underlying assets.
IL Calculator
Entry Price
Current Price
50.0% change
Entry Price
Current Price
Results
Impermanent Loss
2.02%
$252.55
HODL Value
$12,500.00
Fees Earned
+$2,500.00
LP vs HODL
+$2,247.45
You need at least 2.53% APY to break even against impermanent loss at current price divergence.
Impermanent Loss: The DeFi Liquidity Provider's Guide
Expert Industry Guide
Impermanent loss is the most misunderstood concept in decentralized finance, causing liquidity providers to unknowingly sacrifice returns. Understanding this phenomenon is essential before committing capital to automated market makers (AMMs) like Uniswap, Curve, or PancakeSwap.
The Mathematics of Impermanent Loss
When you provide liquidity to a 50/50 pool, the AMM maintains a constant product (x * y = k). As prices change, arbitrageurs rebalance the pool, leaving you with more of the depreciating asset and less of the appreciating one. This rebalancing creates IL.
Why 'Impermanent'?
The loss is called 'impermanent' because it only crystallizes when you withdraw. If prices return to entry levels, IL disappears. However, in trending markets, permanent divergence means permanent loss. Many LPs discover too late that their 'impermanent' losses became very permanent.
The IL Formula
For a 50/50 pool: IL = 2 * sqrt(price_ratio) / (1 + price_ratio) - 1. Key thresholds: 1.25x price change = 0.6% IL, 2x = 5.7% IL, 3x = 13.4% IL, 5x = 25.5% IL. These losses compound in volatile markets.
When LP Fees Offset IL
High trading volume generates fees that can offset IL. Stable pairs (USDC/USDT) have minimal IL but lower fees. Volatile pairs offer higher fees but substantial IL risk. Calculate the break-even APY needed to overcome expected IL.
Advanced Strategies
Concentrated liquidity (Uniswap v3) amplifies both fees and IL. Range orders let you bet on price direction. Protocol incentives (farming rewards) can compensate for IL. Always calculate total expected return accounting for all factors.
Disclaimer: This content is for informational purposes only and should not be considered professional advice. Always consult with qualified professionals for specific guidance related to your situation.