Impermanent Loss Calculator
The essential tool for every DeFi liquidity provider. Enter your token prices and deposit size to instantly see your impermanent loss, compare LP returns against simply holding, and find the minimum fee APY you need to profit. Uses the standard x·y=k constant-product formula from Uniswap v2.
LP Position Calculator
Impermanent Loss vs Price Change
How IL scales with price movement — the current scenario is highlighted in orange.
Pool Composition Over Time
The AMM automatically rebalances your position as prices move. When ETH price rises, the pool sells your ETH for more USDC, reducing your exposure to the rising asset.
Ready to Provide Liquidity?
Use this calculator to evaluate pools before depositing. Look for high-fee-tier pools on volatile pairs, or stable pairs (like USDC/USDT) where IL is negligible.
What Is Impermanent Loss?
Impermanent loss (IL) is one of the most misunderstood concepts in decentralized finance. When you deposit tokens into a liquidity pool — say, ETH and USDC on Uniswap — you're providing two-sided liquidity so traders can swap between them. In return, you earn a share of trading fees.
The problem arises from how automated market makers (AMMs) maintain pricing. AMMs like Uniswap use the constant-product formula x·y=k, where x and y are the token reserves. As traders buy one token, the reserve ratio shifts, causing prices to move. This means the AMM is always selling the appreciating token and buying the depreciating one — the opposite of what a buy-and-hold investor wants.
The result: if ETH doubles in price, your LP position is worth less than if you'd simply held the same ETH and USDC in your wallet. This gap is impermanent loss. It's "impermanent" because if ETH returns to its original price, the loss disappears completely.
The Impermanent Loss Formula
The exact formula for impermanent loss is derived from the constant-product AMM math:
IL = 2√r / (1 + r) − 1 where r = price_new / price_initial
This formula gives us the following benchmarks that every LP should memorize:
Notice that IL is symmetric — a 2x price increase causes the same IL (5.72%) as a 50% price decrease. This makes intuitive sense because r=2 and r=0.5 are reciprocals.
Can Trading Fees Offset Impermanent Loss?
Yes — and for many pools, they do. This is the fundamental LP calculus: compare your expected fee income against your expected impermanent loss. The fee APY needed to break even is approximately equal to the IL percentage divided by the time horizon in years.
Consider a high-volume Uniswap 0.3% pool generating 40% annual fee APY. Even if you suffer 5.72% IL from a 2x price move, you're still net positive by over 34%. The key insight: high-volume, high-fee pools can absorb substantial IL.
On the other hand, a 0.05% stable pool might only generate 2–5% APY. If one of your "stablecoins" de-pegs significantly, IL can quickly exceed your fee income.
Impermanent Loss on Uniswap v3
Uniswap v3 introduced concentrated liquidity, allowing LPs to focus their capital in specific price ranges. This dramatically increases capital efficiency and fee income — but it also amplifies impermanent loss within that range.
When you provide concentrated liquidity on Uniswap v3, you're effectively providing liquidity as if you had much more capital than you actually deposited. A position with 10x capital efficiency earns 10x more fees — but also suffers approximately 10x more impermanent loss per dollar of actual capital if prices stay within your range.
If prices move outside your range entirely, your position becomes 100% one asset and earns zero fees until prices return. This makes range selection a critical skill for v3 LPs.
Strategies to Minimize Impermanent Loss
Experienced DeFi participants use several strategies to manage IL risk:
- Stable-stable pairs: Provide liquidity for USDC/USDT, USDC/DAI, or other stablecoin pairs. Price ratios stay near 1.0, so IL is negligible. The tradeoff is lower fee income.
- Correlated asset pairs: ETH/wBTC, ETH/stETH, or WBTC/renBTC pairs have high price correlation, reducing IL compared to ETH/USDC pools.
- Curve Finance stable pools: Curve's StableSwap invariant is optimized for assets that should trade near parity. It dramatically reduces slippage and IL compared to constant-product AMMs.
- High-fee tiers on volatile pairs: On Uniswap, choose the 1% fee tier for exotic or volatile token pairs. Higher fees compensate for higher IL risk.
- Active management: Monitor your positions and withdraw before IL exceeds fee income. Some protocols (like Gamma Strategies) offer actively managed LP positions.
Real-World Example: ETH/USDC on Uniswap
Imagine you deposit $10,000 into a Uniswap v2 ETH/USDC pool when ETH is at $2,000. You receive pool tokens representing $5,000 worth of ETH (2.5 ETH) and $5,000 USDC.
Six months later, ETH is at $4,000 (a 2x increase). Your pool position now contains approximately 1.77 ETH and $7,071 USDC, worth about $14,142. Meanwhile, had you simply held your initial 2.5 ETH and $5,000 USDC, you'd have $10,000 + $5,000 = $15,000.
The IL is $15,000 − $14,142 = $858, or about 5.72%. If the pool earned 10% APY in fees over six months (~$700 on $10,000 × 6 months), you'd net: $14,142 + $700 − $15,000 = −$158. Still slightly below holding, but close. With 15% fee APY (~$1,050), you'd outperform holding by ~$192.
This is why fee APY matters so much. Use the calculator above to run these numbers for your specific scenario before committing capital.