Impermanent Loss Calculator
Calculate impermanent loss in liquidity pools. Understand how price divergence affects your LP positions.
Pool Parameters
Quick Presets:
Initial price of Token A
Initial price of Token B
Price change of Token A
Price change of Token B
Total value in liquidity pool
Trading fee percentage
How long you provide liquidity
Any additional fees earned
Results
HODL Value
$2,000.00
If just held tokens
LP Value
$2,000.00
Value in pool
IL Amount
$0.00
0.00% loss
Price Gap
0.00%
Price ratio change
Fee Revenue
$0.25
Total fees earned
Net Result
$0.25
Fees - IL
IL Curve
Token Breakdown
| Scenario | Token A | Token B | Total |
|---|---|---|---|
| Initial | 500.0000$500.00 | 500.0000$500.00 | $1000.00 |
| HODL | 500.0000$1000.00 | 500.0000$1000.00 | $2000.00 |
| LP | 500.0000$1000.00 | 500.0000$1000.00 | $2000.00 |
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What is Impermanent Loss?
Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to when you deposited. The loss is "impermanent" because it only becomes permanent if you withdraw during the price divergence.
Simple Example:
If both tokens should be $1000 each but one becomes $2000, you'll have less value than if you just held the tokens.
When Impermanent Loss Happens
One Token Outperforms
Significant price divergence between pool tokens
Market Volatility
High volatility increases IL risk
Low Trading Volume
Less fees to offset potential losses
How to Minimize IL
- Stablecoin Pairs: USDC/USDT have minimal IL (but lower fees)
- Correlated Assets: ETH/wETH, BTC/WBTC pairs
- High Fee Pools: Ensure fees can offset potential IL
- Short-Term LPs: Reduce exposure time during volatility
- IL-Protected Pools: Use protocols like Bancor V3
Common Pools IL Risk
Advanced IL Analysis
Upgrade to CalculateTrade Pro for advanced features:
- Compare multiple pools simultaneously
- Real-time pool data from DEXs
- Historical IL backtesting
- Portfolio-wide IL calculations
IL Guide
The Math Behind IL
IL comes from the constant product formula (x * y = k). When prices change, the pool rebalances to maintain the constant product, resulting in different token distribution than holding.
IL = (2 * sqrt(price_ratio)) / (1 + price_ratio) - 1
Where price_ratio = new_price / original_price
Maximum IL (~25%) occurs when one token increases 4x vs the other.
When to Accept IL Risk
- High Fee Yield: When fees exceed potential IL
- Farming Rewards: Additional token incentives
- Short-Term: During low volatility periods
- Stable Pairs: Minimal IL risk with decent fees
IL Examples
| Price Change | Description | IL | Req. Fee Yield* |
|---|---|---|---|
| 1.25x | 25% price gap | 0.6% | 2.2% APY |
| 1.5x | 50% price gap | 2.0% | 7.3% APY |
| 2x | 100% price gap | 5.7% | 20.8% APY |
| 3x | 200% price gap | 13.4% | 48.9% APY |
| 4x | 300% price gap | 20.0% | 73.0% APY |
| 5x | 400% price gap | 25.5% | 93.1% APY |
*Annual fee yield to break even
Master Liquidity
Use this calculator to make informed LP decisions. Understanding IL is key to profitable DeFi.
IL Protection Strategies
Dynamic Fee Pools
Some protocols adjust fees based on volatility
Single-Sided Liquidity
Protocols like Bancor offer IL protection
Range Orders
Concentrated liquidity within specific price ranges
Hedging
Use options or perpetuals to hedge price divergence
Real-World Example
In 2021 bull run, many ETH/altcoin LPs experienced significant IL. While ETH increased 5x, some altcoins increased 50-100x. LPs would have been better off holding tokens separately.
Disclaimer
This calculator provides estimates. Actual IL may vary based on pool implementation, fee structures, and market conditions. Liquidity provision involves risks including impermanent loss, smart contract risk, and market risk. This tool is for educational purposes only and should not be considered financial advice. Always do your own research.