Impermanent Loss Calculator

What this impermanent loss calculator does

This tool estimates the impermanent loss (IL) you experience when providing liquidity to an automated market maker (AMM) such as Uniswap v2, SushiSwap, or Balancer. It compares the value of your liquidity provider (LP) position against simply holding the same tokens (HODLing), and lets you include estimated fee and reward APR to see whether trading fees offset IL.

You can model common pool types like 50/50, 80/20, and 95/5, or set a custom weight for Token A. By changing the current or future token prices, the calculator shows how price divergence affects your final position value and percentage difference versus holding.

Core concepts: impermanent loss and LP returns

Impermanent loss is the difference between:

• the value of your share of a liquidity pool after prices move, and
• the value you would have if you had simply held the same amounts of Token A and Token B outside the pool.

Because AMMs rebalance portfolio weights as prices move, you tend to end up holding more of the underperforming token and less of the outperforming one. This rebalancing creates IL whenever prices diverge, even though your total dollar value may still increase in absolute terms.

At the same time, LPs earn trading fees (and sometimes extra rewards). The net result for a liquidity position is therefore:

• HODL value (what you would have by holding),
• LP value before fees (after AMM rebalancing),
• fee income based on your APR and time in the pool, and
• net difference vs HODLing after adding fees.

How impermanent loss is calculated (conceptually)

This calculator follows the standard constant-product and constant-mean AMM logic, depending on the pool type. In simplified terms, for a 50/50 pool the impermanent loss as a function of the price ratio change can be written as:

where R is the price ratio of Token A after the move relative to the starting price (for example, R = 2 if Token A doubled in price against Token B). The result is usually expressed as a negative percentage, because the LP position is worth less than the HODL position for the same starting value.

For weighted pools such as 80/20 or 95/5, a constant-mean market maker formula is used, in which the pool maintains a target weight w for Token A and 1 − w for Token B. Impermanent loss is still defined as the percentage difference between the LP value and the HODL value for the same start and end prices, but the magnitude of IL is lower for more heavily weighted pools when the non-dominant token moves in price.

The calculator then adds estimated fee and reward income using the APR you provide. In broad terms:

Fee income ≈ Initial investment × (APR ÷ 100) × (Days in pool ÷ 365)

Net LP return is the rebalanced pool value plus fee income, compared to the HODL value.

How to use the impermanent loss calculator

1. Choose a pool type. Select a 50/50, 80/20, 95/5, or custom-weight pool. Use 50/50 for typical Uniswap v2 or SushiSwap pairs, and weighted options for Balancer-style pools.
2. Set the token names. Names are just labels for your own reference (for example, ETH and USDC).
3. Enter initial prices. Use the prices at the time you would enter (or did enter) the pool. For stablecoins, you can usually keep the initial and current price at 1.
4. Enter current or future prices. These can be today’s prices or a scenario you want to model (for example, Token A doubling while Token B stays flat).
5. Set your initial investment. This is the total dollar value you add to the pool across both tokens.
6. Add an estimated pool APR and time in pool. The APR should reflect expected trading fees and any token incentives. The days in pool sets the time horizon over which fees accrue.
7. Run the calculation. The results panel will show HODL value, LP value before and after fees, the dollar difference, and the percentage impermanent loss.

Worked example using the default values

Suppose you provide $10,000 of liquidity to a 50/50 ETH–USDC pool:

• Token A (ETH) initial price: $2,000
• Token A future price: $3,000
• Token B (USDC) initial and future price: $1
• Pool APR: 25%
• Days in pool: 365

At entry, you deposit $5,000 worth of ETH and $5,000 worth of USDC. As ETH rises from $2,000 to $3,000 while USDC stays at $1, the AMM continually rebalances the pool by selling some ETH into USDC to maintain a 50/50 value split. By the end of the period:

• Your HODL value assumes you started with the same number of ETH and USDC but never provided liquidity. ETH appreciated, so your HODL portfolio benefits fully from the price increase.
• Your LP value before fees reflects fewer ETH and more USDC than in the HODL case, which reduces your upside. The difference between these two values is your impermanent loss.
• Your fee income uses the 25% APR over 365 days. With a $10,000 starting position, that is roughly $2,500 in fees and rewards if APR is constant and simple (non-compounding).

The calculator brings these pieces together to show whether the fee income more than compensates for the IL in this scenario. You can change the ETH future price or APR to see how sensitive your results are to volatility and fee levels.

Comparison of LP vs HODL scenarios

The results are summarized as a side-by-side comparison so you can quickly see how liquidity provision changes your outcome versus passive holding.

In many realistic markets, LP (before fees) will show a negative difference due to IL, while LP (after fees) may be closer to or even above the HODL outcome if trading volumes and fee rates are high enough.

When impermanent loss is most significant

IL does not affect all pairs equally. It tends to be:

• Low for correlated or stable pairs, such as USDC/DAI or staked ETH vs ETH, especially in 50/50 pools.
• Moderate to high for volatile pairs with large price swings, such as ETH/USDC or BTC/USDT during strong trends.
• Reduced for heavily weighted pools (for example, 80/20 or 95/5), where most of the value stays in the dominant asset.

Use the pool type selector and custom weight field to simulate these different behaviors without changing the underlying math of the AMM protocols themselves.

Limitations and assumptions

This calculator is a simplification of real-world DeFi behavior. Key assumptions include:

• AMM model: 50/50 pools are treated as constant-product AMMs (Uniswap v2 style). Weighted pools use a constant-mean approximation with fixed target weights.
• Single price change: The tool compares one starting price and one ending price. It does not model path dependency or multiple intermediate price swings.
• Fee APR is constant: APR is assumed to stay the same over the selected period. Actual fee rates fluctuate with trading volume and volatility.
• Simple fee accrual: Fee income is modeled as simple interest. Compounding, auto-reinvestment, or reward vesting schedules are not included unless specifically built into the underlying math of the tool.
• No slippage or gas costs: Transaction fees, gas, and price impact from your own trades are ignored.
• No IL protection mechanisms: Protocol-level protections, insurance, or dynamic fees that reduce IL are not modeled.
• No protocol risk: Smart contract risk, oracle failures, and other tail events are out of scope.

The results are best viewed as an educational estimate for comparing LP vs HODL under specific scenarios, not as a guarantee of actual returns.

Using the results in your DeFi strategy

Once you have run a few scenarios, consider:

• How sensitive your net outcome is to token price changes.
• Whether higher APRs are required to compensate for IL in volatile pairs.
• If a weighted pool (for example, 80/20) gives a better trade-off between exposure and IL for your thesis.
• Whether your time horizon (days in pool) matches the typical volatility of the assets.

By adjusting prices, pool weights, APR, and duration, this impermanent loss calculator can help you understand the trade-offs of providing liquidity versus simply holding tokens in your wallet.

Understanding Impermanent Loss: A Complete Guide

Impermanent loss (IL) is one of the most important—yet frequently misunderstood—concepts in decentralized finance (DeFi). It represents the opportunity cost of providing liquidity to an automated market maker (AMM) compared to simply holding the underlying tokens. This comprehensive guide will demystify IL, show you how to calculate it, and help you make informed decisions about liquidity provision.

What Is Impermanent Loss?

When you deposit tokens into a liquidity pool, the AMM algorithm rebalances your position as prices change. If Token A's price increases relative to Token B, the pool automatically sells some of Token A for Token B to maintain the target ratio. This means you end up with:

• Fewer units of the appreciating token (Token A)
• More units of the depreciating token (Token B)
• A total value that is less than if you had simply held both tokens

The term "impermanent" reflects that the loss is only realized when you withdraw. If prices return to the original ratio, the loss disappears—hence it's "impermanent" rather than "permanent."

The Mathematics of Impermanent Loss

For a standard 50/50 liquidity pool (like Uniswap v2 or SushiSwap), impermanent loss depends solely on the price ratio change. The formula is:

Where r is the price ratio change:

This formula reveals a crucial insight: impermanent loss depends on how much prices diverge, regardless of direction. A 2× increase causes the same IL as a 50% decrease (both represent a 2:1 ratio change).

Impermanent Loss Reference Table (50/50 Pool)

Weighted Pools and Impermanent Loss

Platforms like Balancer allow pools with non-equal weights (e.g., 80/20 or 95/5). The generalized IL formula for weighted pools is:

Where w_A and w_B are the pool weights (e.g., 0.80 and 0.20 for an 80/20 pool).

Higher weight on an asset reduces IL exposure to that asset's price changes:

The Role of Trading Fees

Liquidity providers earn trading fees every time someone swaps through the pool. These fees can offset or even exceed impermanent loss, making liquidity provision profitable despite IL. The net position is:

Common fee tiers across AMMs:

When Does Impermanent Loss Become Permanent?

IL crystallizes into actual loss in these scenarios:

1. Withdrawal at divergent prices: If you exit when prices differ from entry, IL becomes real loss
2. Token goes to zero: In extreme cases (rug pulls), IL can approach 100%
3. Prices never revert: If the new price ratio becomes the "new normal," the loss is effectively permanent

Concentrated Liquidity: Uniswap v3

Uniswap v3 introduced concentrated liquidity, where LPs can specify a price range for their capital. This increases capital efficiency but also amplifies impermanent loss:

Key considerations for v3 positions:

• Tighter ranges = higher fee APR but higher IL
• Positions go "out of range" when prices exceed bounds
• Active management required to rebalance ranges
• Gas costs can eat into profits on smaller positions

Strategies to Mitigate Impermanent Loss

1. Choose Correlated Pairs

Pairs that tend to move together experience minimal IL:

• Stablecoin-stablecoin: USDC/DAI, USDT/USDC
• Wrapped pairs: ETH/stETH, ETH/wETH
• Pegged assets: renBTC/WBTC

2. Use Higher-Weight Pools

If you're bullish on one asset, use an 80/20 or 95/5 pool to maintain more exposure while still earning fees.

3. Select High-Volume Pools

Pools with high trading volume generate more fees to compensate for IL. Look for pools with:

• Consistent daily volume relative to TVL
• High fee tier appropriate for the pair volatility
• Sustainable yield (not just temporary incentives)

4. Time Your Entry

Enter pools when you believe prices are relatively stable or after major volatility events when a return to mean is likely.

5. Consider IL Protection

Some protocols offer IL insurance or protection mechanisms:

• Bancor: Single-sided liquidity with IL protection
• Thorchain: Native IL protection after vesting
• Options protocols: Hedge with put options

Calculating Break-Even APR

To profit from liquidity provision, your fee income must exceed IL. The break-even APR formula is:

For example, if you expect 5.72% IL over 6 months, you need at least 11.44% APR to break even.

Real-World Example: ETH/USDC Pool

Let's walk through a complete example:

Scenario: You deposit $10,000 into an ETH/USDC pool when ETH = $2,000

• Initial holdings: 2.5 ETH + 5,000 USDC
• Pool APR: 20%
• Time in pool: 180 days

ETH rises to $3,000 (1.5× increase):

1. IL = 2.02%
2. HODL value = 2.5 × $3,000 + $5,000 = $12,500
3. LP value ≈ $12,500 × (1 - 0.0202) = $12,247.50
4. Fee income (6 months at 20% APR) = $10,000 × 0.10 = $1,000
5. Total LP value = $12,247.50 + $1,000 = $13,247.50
6. Net gain vs HODL = $13,247.50 - $12,500 = +$747.50

Despite impermanent loss, the LP position outperforms due to fee income!

IL in Different Market Conditions

Common Misconceptions

Myth 1: "I only lose if I withdraw"

While technically true that IL is unrealized, if prices permanently diverge, the loss is effectively real. The "impermanent" label can be misleading.

Myth 2: "IL only matters in bear markets"

IL occurs in both directions. A 3× pump creates the same IL (13.4%) as a 66% drop. Bull markets can cause substantial IL.

Myth 3: "Higher APR always compensates"

High APRs often come from tokens that may depreciate (farm tokens, governance tokens). Always consider the source of yield.

Frequently Asked Questions

Can impermanent loss exceed 100%?

No, IL is bounded. Even if one token goes to zero, you'd lose at most 100% of your position (same as holding). In practice, maximum IL approaches ~100% only in extreme scenarios.

Does IL apply to Curve stablecoin pools?

Technically yes, but it's minimal because stablecoins maintain near-parity. A 1% depeg might cause 0.01% IL. The bigger risk is one stablecoin losing its peg entirely.

How do liquidity mining rewards affect the math?

Add token rewards to your fee income when calculating net returns. Be cautious—many reward tokens depreciate, so APY can be misleading.

Is single-sided staking better?

Single-sided liquidity (like on Bancor) eliminates direct IL exposure but introduces other risks like counterparty risk and potentially lower yields.

How often should I rebalance?

For v3 concentrated positions, rebalance when positions go significantly out of range. Consider gas costs—frequent rebalancing can erode profits on smaller positions.

Tools for IL Monitoring

• DeBank: Portfolio tracking with IL display
• Zapper: LP position analytics
• APY.vision: Dedicated IL tracking
• Revert.finance: Uniswap v3 position analytics

Key Takeaways

1. Impermanent loss is the opportunity cost vs. holding, not an absolute loss
2. IL depends on price ratio change, not direction (up vs. down)
3. Trading fees can offset IL—calculate break-even APR
4. Weighted pools reduce IL exposure to the higher-weighted asset
5. Concentrated liquidity amplifies both fees AND IL
6. Correlated pairs minimize IL (stablecoins, pegged assets)
7. Always consider IL when evaluating LP opportunities

Understanding impermanent loss is essential for successful DeFi participation. Use this calculator to model different scenarios before committing capital, and always factor in IL when comparing LP yields to simple holding strategies.