Impermanent Loss Calculator — LP Position Analysis

Understanding Impermanent Loss in Liquidity Pools

Impermanent loss (IL) occurs when the price ratio of tokens in an automated market maker (AMM) liquidity pool changes from the ratio at the time you deposited. This calculator quantifies the loss by comparing the value of your position in the pool against what it would have been worth if you had simply held the tokens in your wallet. The term "impermanent" refers to the fact that the loss is only realized when you withdraw, and it reverses if prices return to the original ratio.

The impermanent loss formula for a standard constant-product AMM (like Uniswap v2) is: IL = 2 * sqrt(price_ratio) / (1 + price_ratio) - 1, where price_ratio is the ratio of the new price to the initial price. A 2x price increase in one token relative to the other results in approximately 5.7% impermanent loss. A 5x change causes about 25.5% loss. The loss is symmetric, meaning a 50% price drop causes the same IL percentage as a 2x increase, since both represent the same magnitude of ratio change.

Whether providing liquidity is profitable depends on whether the trading fees earned exceed the impermanent loss incurred. High-volume pools with stable price ratios (like stablecoin pairs) generate fees with minimal IL. Volatile pairs with large price swings can suffer significant IL that exceeds fee income. This calculator helps liquidity providers evaluate whether a pool is likely to be profitable by showing the IL at various price change scenarios. Always compare projected fee income from the pool APR against the worst-case impermanent loss at your expected price volatility range before committing capital to a liquidity position.