Liquidity Pool Impermanent Loss Calculator
Introduction: What impermanent loss means in an AMM liquidity pool
Impermanent loss is the value difference that appears when you add a token pair to a constant-product liquidity pool and the market price of one token later moves away from the entry ratio. Instead of sitting on the same mix you deposited, the AMM keeps adjusting the inventory so the pool stays balanced for traders.
- holding your tokens in a wallet (HODLing), and
- depositing the same tokens into an automated market maker (AMM) liquidity pool
When that divergence happens, the pool has usually sold a little of the rising asset and bought a little of the falling one on your behalf. That rebalancing is what creates impermanent loss: compared with a straight hold, the LP position ends up worth less whenever the final price does not return to the original ratio.
How impermanent loss is calculated for a 50/50 AMM pool
For a simple two-token, 50/50 constant-product pool, impermanent loss depends on the final price ratio rather than on the absolute price level. Define the entry price as P0, the exit price as P1, and the ratio r = P1 / P0. That ratio tells the calculator how far the market has moved from the moment you supplied liquidity.
- P0: initial price of token A (in token B, e.g., ETH in USDC)
- P1: final price of token A after the price move
- r = P1 / P0: the price ratio (how many times the price has changed)
For a 50/50 pool without fees, the standard impermanent loss formula as a fraction of the HODL value is:
The same equation applies whether the token doubles, halves, or moves by some smaller multiple, because the pool only cares about the relative change. A ratio of 1 means no divergence and therefore no impermanent loss, while ratios above or below 1 produce the same loss pattern in opposite directions.
To convert this into a percentage impermanent loss, multiply by 100. This formula captures how much less your liquidity position is worth compared with simply holding both tokens in the original 50/50 proportion.
How this impermanent loss calculator works
This calculator takes the price ratio you enter, applies the standard 50/50 constant-product equation, and estimates how far the LP position trails a passive hold of the same starting value. It is designed as a quick planning tool for AMM pairs, so the focus is on the price move itself rather than on live pool volume or historical fee data.
- Price change / price ratio: how far the price has moved relative to your entry.
- Impermanent loss (%): how much value you give up versus HODLing, ignoring any trading fees earned.
- Portfolio values: the notional value of your LP position versus the value if you had held your tokens outside the pool.
You can model different scenarios by varying the price ratio or the percentage price move. Positive moves and negative moves both generate impermanent loss whenever the final price differs from the initial price. Because the calculation is ratio-based, the starting currency can be a stablecoin, a base asset, or any other quote token, as long as the ratio reflects how many quote units one token is worth at exit versus entry.
Interpreting impermanent loss results
When you run this liquidity-pool impermanent-loss calculator, the percentage result tells you how much value is missing from the LP position relative to the hold scenario at the same final ratio.
- Impermanent loss (%): a negative percentage indicates how much less your LP position is worth compared with HODLing. For example, -5% means that, after the price move and pool rebalancing, you have 5% less value than if you had simply held the original tokens.
- LP value vs HODL value: the absolute dollar or token amounts for each scenario. This shows the trade-off between earning fees and taking on IL risk.
- Break-even intuition: in practice, LP fees can offset impermanent loss. If the cumulative fees you expect to earn are larger than the IL, providing liquidity may still be attractive.
The key question is not whether the number is negative—it always is when the price moves—but whether the loss is small enough that your expected trading fees, incentives, or hedges make the position worthwhile.
Worked example: ETH/USDC impermanent loss when ETH doubles
Suppose you are considering adding liquidity to an ETH/USDC 50/50 pool. At the time you enter, ETH trades at 1,000 USDC. You deposit 1 ETH and 1,000 USDC, for a total of 2,000 USDC of value.
Later, ETH doubles in price to 2,000 USDC, so the price ratio is:
r = P1 / P0 = 2,000 / 1,000 = 2
Plugging into the formula:
- sqrt(r) = sqrt(2) ≈ 1.4142
- 2 × sqrt(r) ≈ 2.8284
- r + 1 = 2 + 1 = 3
- 2 × sqrt(r) / (r + 1) ≈ 2.8284 / 3 ≈ 0.9428
Therefore:
IL = 1 − 0.9428 ≈ 0.0572, or about 5.72% impermanent loss.
What does this mean in practice?
- If you had HODLed: 1 ETH would now be worth 2,000 USDC, and your 1,000 USDC is still 1,000 USDC, for a total of 3,000 USDC.
- As an LP: the pool has rebalanced your share to hold more USDC and less ETH. Your LP position might be worth around 2,828 USDC, which is 5.72% less than 3,000 USDC.
The 5.72% is your impermanent loss. On a 3,000 USDC hold value, that shortfall is roughly 171.60 USDC before fees. If you earned more than that in trading fees over the same period, your net outcome as an LP could still be better than HODLing.
Impermanent loss vs HODLing and realized loss
The table below places impermanent loss in context by contrasting a liquidity position with a plain hold and with an outright sale:
| Scenario | What you do | How value changes | Key takeaway |
|---|---|---|---|
| HODLing | Keep your tokens in a wallet, no LP position. | Portfolio value moves 1:1 with price of each token. | No impermanent loss, but no trading-fee income either. |
| Providing liquidity (no fees) | Deposit tokens into a 50/50 AMM pool. | Pool rebalances; you end up with more of the underperforming asset and less of the outperforming one. | When prices move, LP value generally lags behind HODLing; this gap is impermanent loss. |
| Providing liquidity (with fees) | Same as above, but traders pay swap fees that accrue to LPs. | IL still occurs, but fee income can partially or fully offset it. | If fees > IL, LP returns can beat HODLing despite price divergence. |
| Realized loss from selling | Manually sell tokens at a lower price than you bought. | Loss becomes permanent at the moment of sale. | Unlike IL, there is no chance of recovery if prices later revert. |
Assumptions and limitations for impermanent-loss estimates
This impermanent loss calculator is an educational baseline for a standard two-asset pool, not a live quote for every DeFi protocol. The estimate is most useful when you want a clean view of price divergence before adding fee assumptions, incentives, or protocol-specific protections.
- AMM type: assumes a constant-product (x·y = k), two-asset, 50/50 pool similar to Uniswap v2.
- No fees in the core IL formula: trading fees are not baked into the IL percentage; you should compare estimated IL with your own fee assumptions separately.
- No slippage or price impact: uses spot prices and does not simulate trade-by-trade path or large price impact.
- No IL protection: protocols with IL insurance, dynamic fees, or concentrated liquidity (e.g., Uniswap v3, Arrakis, etc.) may have very different risk profiles.
- Stable external prices: assumes you can exit the pool at the final price without additional volatility between calculation and exit.
- Indicative only: results are approximations and may not match exactly what you see on-chain or in protocol analytics.
Important: none of the outputs from this calculator constitute financial, investment, or tax advice. DeFi markets are volatile and risky. Always do your own research and consider your risk tolerance before providing liquidity.
How to use this impermanent loss calculator
- Scenario testing: check how much impermanent loss you might face if a token doubles, halves, or moves by a smaller percentage.
- Fee vs IL comparison: combine your IL estimates with typical annualized fee yields for the pool to judge whether the trade-off seems reasonable.
- Risk management: use IL estimates to size your LP positions conservatively, especially for volatile or long-tail tokens.
Use this page as a starting point to understand impermanent loss mechanics and to build intuition before committing significant capital to any DeFi liquidity pool. The closer you are to the entry ratio, the smaller the loss; the farther the market drifts, the more important it becomes to think about fees, incentives, and how long you expect to stay in the pool.
Formula: the impermanent-loss estimate used here
This calculator uses the standard constant-product 50/50 pool relationship: impermanent loss = 1 - (2√r)/(r + 1), where r is the final price divided by the entry price. The entered investment is then used to compare a simple hold against the LP position at the same price ratio, so you can see the gap before any trading fees are added.
Arcade Mini-Game: LP Liquidity Pool Impermanent Loss Calculator Calibration Run
Use this quick arcade run to practice spotting the two inputs that matter most for impermanent-loss estimates: the final price ratio and your starting investment. The game is about recognizing useful setup from noisy distractions, which is the same habit that helps when you compare a potential LP position with a simple hold.
Start the game, then use your pointer or arrow keys to catch useful impermanent-loss inputs and avoid bad assumptions.
Impermanent loss results
Disclaimer: This calculator provides educational impermanent-loss estimates only and does not constitute professional advice. If you are evaluating a specific pool, check fee tiers, token pair behavior, and your own risk tolerance before supplying liquidity.