Impermanent Loss Calculator
Estimate the impermanent loss on a liquidity position when the two assets’ price ratio changes.
Calculator
For educational and informational purposes only — not financial, investment or tax advice. Results are estimates based on the figures you enter.
Conceptual diagram
What the Impermanent Loss Calculator does
The Impermanent Loss Calculator estimates how much value a liquidity provider (LP) loses compared to simply holding the same assets, when the price ratio between the two assets in a pool changes after deposit.
Impermanent loss is not a fee or a penalty imposed by the protocol — it is a natural consequence of how automated market makers (AMMs) work. When you deposit two assets in equal dollar value and one asset’s price moves significantly relative to the other, the AMM algorithm rebalances your position in a way that leaves you with less total value than if you had just held the original amounts outside the pool. The calculator makes this cost visible before you commit capital.
The formula
Where price_ratio = new price of token A ÷ original price of token A
(normalised so the other token stays at 1)
Worked example: ETH doubles in price
Illustrative — standard 50/50 AMM formula (Uniswap v2 constant-product model)
You provide liquidity to an ETH/USDC pool when ETH = $2,000. You deposit $5,000 ETH (2.5 ETH) and $5,000 USDC (total: $10,000). ETH price rises to $4,000 (a 2× move).
- Price ratio: 4,000 ÷ 2,000 = 2
- IL = 2 × sqrt(2) ÷ (1 + 2) − 1 = −5.72%
- LP position value at $4,000 ETH: approximately $14,142
- Hold value: 2.5 ETH × $4,000 + $5,000 USDC = $15,000
- Impermanent loss: $15,000 − $14,142 = $858
The LP earned $858 less than they would have by simply holding. However, the position also earned trading fees over the period — if those fees exceeded $858, the LP came out ahead despite the impermanent loss. The calculator shows the cost; the fee income requires separate analysis of pool volume.
Impermanent loss by price change magnitude
IL is symmetric: a 2× price increase causes the same IL as a 50% price decrease. IL also grows rapidly as the price move becomes larger. A 10× move (common in altcoins) creates over 42% impermanent loss versus holding — a substantial headwind that fee income would need to overcome.
When impermanent loss becomes permanent
The “impermanent” qualifier is technically accurate but easily misunderstood. Loss is impermanent only in the sense that if the price ratio returns exactly to the original ratio when you entered the pool, the IL disappears. In practice:
- If you withdraw while the ratio is shifted, the loss is permanent — you lock it in at exit.
- If the price ratio never returns to the entry ratio, the loss stays on the books for as long as you are in the pool.
- The loss only truly disappears if the ratio recovers before you exit, which requires holding the position and waiting — with no guarantee of recovery.
IL vs fee income: the LP’s real decision
Impermanent loss is the cost side of the LP equation. The income side is trading fees — the pool charges fees on every swap and distributes them proportionally to LPs. Whether LP’ing is profitable depends on whether fees exceed IL over your hold period.
| Pool type | Typical fee | IL risk | Notes |
|---|---|---|---|
| Stablecoin pair (USDC/USDT) | 0.01–0.05% | Very low (prices stay ~$1) | Low fees, very low IL — best for capital preservation |
| ETH/stablecoin (ETH/USDC) | 0.05–0.3% | Moderate (ETH price moves) | High volume compensates; depends on market conditions |
| BTC/ETH | 0.05–0.3% | Low-moderate (correlated assets) | Both move together, reducing ratio change risk |
| ETH/altcoin | 0.3–1% | High (altcoin volatile vs ETH) | High fees; high IL if altcoin diverges strongly |
| Altcoin/altcoin | 0.3–1%+ | Very high | High risk; fee income often insufficient in practice |
Scenario: the 2021 ETH bull run for LPs
Historical illustration — not a prediction
ETH rose approximately 5.5× from $730 to $4,000 in early-to-mid 2021. For a liquidity provider in an ETH/USDC pool at entry ETH price of $730:
- Price ratio: 4,000 ÷ 730 = 5.48×
- IL = 2 × sqrt(5.48) ÷ (1 + 5.48) − 1 ≈ −24.6%
- Compared to holding: LP missed approximately 24.6% of the gain that a simple holder captured
The ETH/USDC pool on Uniswap v2 generated significant fee revenue during this bull run — the pool was among the highest-volume pools and annual fee yields sometimes reached 15–30% APY. For many LPs, the fee income compensated for, or even exceeded, the IL over the full period. But this depends heavily on whether you entered before or during the move and when you exited.
Strategies that reduce impermanent loss risk
- Correlated pairs. Providing liquidity to two assets that move together (e.g. ETH/stETH, USDC/USDT) reduces IL because the price ratio is unlikely to shift significantly. The trade-off is lower fee income on stable pairs.
- Concentrated liquidity (Uniswap v3+). Modern AMMs let you provide liquidity within a specific price range, increasing capital efficiency and fee income — but increasing IL risk if the price moves outside your range. The standard IL formula does not directly apply to concentrated positions.
- Short LP duration. The longer you are in a pool, the more likely a large price ratio shift. Some LPs provide liquidity for days or weeks rather than months, targeting short periods of high volume and then exiting before ratio divergence becomes too large.
- Hedging. Some sophisticated LPs hedge their ETH exposure (e.g. by shorting ETH futures) to isolate fee income without directional risk. This adds complexity and cost.
How to use the calculator
- Enter the initial price ratio — typically 1.0 (both assets at equal value at entry) unless you are analysing a position you entered when prices were different from today.
- Enter the new price ratio — the ratio between Asset A’s new price and its entry price. Example: if Asset A doubled, enter 2.0.
- The calculator returns the impermanent loss percentage — the loss relative to simply holding.
- Compare against fee income: if the pool’s annual fee APY is higher than the IL over your planned hold period, LP’ing may be profitable — but this requires estimating future volume, which is uncertain.
Limitations
- The standard formula applies to 50/50 constant-product AMMs (Uniswap v2 model). Weighted pools (e.g. 80/20 on Balancer), stablecoin pools (e.g. Curve), and concentrated liquidity pools (Uniswap v3) have different IL profiles that the standard formula does not capture exactly.
- The formula does not include fee income, gas costs or protocol incentive tokens. These significantly affect whether LP is worthwhile.
- IL is denominated in the pool’s assets, not in USD. If both assets fall in USD terms, the IL in percentage terms may be low, but the total USD value of the position has still declined.
Common questions
Does impermanent loss apply to stablecoin pools? Minimally. If both assets are pegged to $1, the price ratio rarely shifts significantly and IL approaches zero. This is why stablecoin LP positions are popular: low IL risk, steady (if modest) fee income.
Is impermanent loss “real”? It is a real opportunity cost — you have less value than you would have had by holding. It only disappears if prices revert to the entry ratio before you exit. If you withdraw during a price divergence, the loss is real and permanent.
Why is it called “impermanent”? Because in theory, if the price ratio returns to its original level, the loss disappears and you would have as much as a simple holder. In practice, prices rarely return to an exact entry level, and the term has been criticised for understating the risk. Some analysts prefer “divergence loss” as a more accurate label.
Related reading
- Glossary: Impermanent Loss, Liquidity Pool and Automated Market Maker
- Related tools: ROI Calculator and Crypto Converter
For education only — not financial, investment or tax advice. DeFi protocols carry smart contract risk, slashing risk and other factors not reflected in the impermanent loss formula.