1.5
x
50.00%
$12,500.00
$12,247.45
2.0204%
$252.55
$2,000.00
$14,247.45
$1,747.45
2.53%
1.5
x
50.00%
$12,500.00
$12,247.45
2.0204%
$252.55
$2,000.00
$14,247.45
$1,747.45
2.53%
The Impermanent Loss Calculator is a critical tool for anyone providing liquidity to automated market makers (AMMs) like Uniswap, SushiSwap, Curve, or PancakeSwap. Impermanent loss (IL) is the unrealized loss that liquidity providers (LPs) experience when the price ratio of their deposited tokens changes relative to when they entered the pool. It is called "impermanent" because the loss is only realized when you withdraw; if prices return to the original ratio, the loss disappears.
Impermanent loss is the single most misunderstood concept in DeFi, and it has cost liquidity providers billions of dollars collectively. When you provide liquidity to a 50/50 constant product pool (x * y = k), the AMM automatically rebalances your position as prices change. If the price of one token doubles, the AMM sells some of that appreciating token and buys the depreciating one to maintain balance. This means you end up with less of the token that went up and more of the token that went down compared to simply holding both tokens in your wallet.
The mathematical formula for impermanent loss is elegant but unintuitive: IL = 2 * sqrt(price_ratio) / (1 + price_ratio) - 1. This always produces a negative number (a loss), and the loss increases non-linearly with price divergence. A 2x price change causes 5.7% IL. A 5x change causes 25.5% IL. A 10x change causes 42.5% IL. These losses can easily exceed the trading fees and liquidity mining rewards earned from the pool.
This calculator goes beyond raw IL calculation by comparing your LP position value against a simple HODL strategy (just holding both tokens in a wallet). It also factors in pool earnings from trading fees and rewards, showing you the net result. A pool may have significant IL but still be profitable if the APY from fees and incentives exceeds the IL. This net analysis is what ultimately determines whether providing liquidity was a good decision.
The calculator uses the constant product AMM impermanent loss formula:
Price Ratio = Current Price / Initial Price. This measures how much the token's price has changed since you entered the pool.
Impermanent Loss % = 2 x sqrt(Price Ratio) / (1 + Price Ratio) - 1. This formula applies to standard 50/50 constant product pools (Uniswap V2 style). The result is always negative or zero (zero only when ratio = 1).
HODL Value = (Investment/2) + (Investment/2) x Price Ratio. This is what your tokens would be worth if you had not provided liquidity, assuming a 50/50 initial split.
LP Position Value = HODL Value x (1 + IL%). The IL reduces your LP value compared to holding.
IL in Dollars = HODL Value - LP Value. The absolute dollar amount of impermanent loss.
Pool Earnings = Investment x Pool APY x Days/365. Estimated income from trading fees and any liquidity mining rewards.
Net Result vs HODL = LP Value + Pool Earnings - HODL Value. Positive means providing liquidity was profitable; negative means HODL would have been better.
If the net result is positive, your pool earnings exceed the impermanent loss, meaning providing liquidity was worthwhile. If negative, you would have been better off simply holding the tokens. As a rule of thumb, pools need an APY of at least 2x the IL percentage to be net positive. For volatile token pairs with large price swings, consider concentrated liquidity (Uniswap V3), stablecoin pairs with minimal IL, or pools with high trading volume generating substantial fee income. Monitor your position regularly, as IL can escalate rapidly during market volatility.
Inputs
Results
With ETH rising 50%, impermanent loss is approximately 2.02% ($253). However, with 20% APY earnings ($2,000), the net result is +$1,747 compared to HODL, making liquidity provision profitable.
Inputs
Results
A 75% altcoin price drop causes severe 20% impermanent loss ($1,250). Even with a high 50% APY earning $2,466 over 180 days, the pool barely compensates. The LP has $5,000 + $2,466 = $7,466, versus $6,250 from HODLing.
Impermanent loss is the difference in value between holding tokens in a liquidity pool versus simply holding them in a wallet. It occurs because the AMM rebalances your position as prices change, leaving you with less of the appreciating token and more of the depreciating one compared to HODL.
The loss is impermanent because it only exists while prices have diverged from the entry ratio. If prices return exactly to the original ratio, the loss disappears completely. However, if you withdraw while prices are diverged, the loss becomes permanent (realized).
1.25x price change: 0.6% IL. 1.5x: 2.0% IL. 2x: 5.7% IL. 3x: 13.4% IL. 4x: 20.0% IL. 5x: 25.5% IL. 10x: 42.5% IL. The relationship is non-linear -- losses accelerate with larger price movements in either direction.
Stablecoin-to-stablecoin pools (USDC/USDT, DAI/USDC) experience minimal impermanent loss because both tokens maintain approximately the same price. Price deviations of 0.1-1% cause negligible IL. This is why stablecoin pools are popular for conservative yield strategies.
Uniswap V3 allows LPs to concentrate liquidity in a specific price range, which amplifies both trading fee income and impermanent loss. Within your range, you earn more fees per dollar deposited, but IL is also magnified. If the price moves outside your range, you hold 100% of one token.
Yes, in many cases. High-volume pools generate substantial trading fees that can exceed IL. The key metric is net return: Pool APY minus IL percentage. Pools with high volume relative to liquidity (high fee/TVL ratio) are most likely to generate positive net returns despite IL.
Yes. Impermanent loss occurs whenever the price ratio changes, regardless of direction. Whether the token doubles or halves, you experience IL. The formula uses the price ratio, so a 2x increase and a 0.5x decrease produce the same IL percentage (5.7%).
Choose correlated token pairs (ETH/stETH, WBTC/renBTC), provide liquidity during low-volatility periods, use stablecoin pools, consider single-sided liquidity protocols, or use IL protection features offered by some protocols (like Bancor). Concentrated liquidity requires active management to minimize IL risk.
Tax treatment varies by jurisdiction. In most cases, IL is only relevant at withdrawal (when it becomes a realized gain or loss). The LP position itself is typically viewed as a swap at entry and exit. Consult a crypto tax professional, as DeFi LP taxation is complex and evolving.
Some protocols compensate LPs for impermanent loss. Bancor V3 offered full IL protection after 100 days (now discontinued). THORChain provides partial IL protection. Some yield aggregators offset IL with extra token incentives. Always verify the sustainability and terms of any IL protection mechanism.
Roboculator Team
The Roboculator Team explains calculations, planning tools, and practical formulas in clear language for real-life situations.
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