Liquidity Pool Impermanent Loss Calculator
Introduction: What is impermanent loss?
Impermanent loss (IL) is the difference in value between:
- holding your tokens in a wallet (HODLing), and
- depositing the same tokens into an automated market maker (AMM) liquidity pool
when the token prices move away from the price ratio that existed at the time you added liquidity. In constant-product AMMs (like Uniswap v2 and many clones), the pool automatically rebalances your assets as traders swap, which can leave you with more of the underperforming asset and less of the outperforming one. The resulting value shortfall relative to simply holding is the impermanent loss.
How impermanent loss is calculated for a 50/50 AMM pool
For a simple two-token, 50/50 constant-product pool, impermanent loss depends only on how much the price moves, usually expressed as the ratio between the final price and the initial price of one token (assuming the other is your quote asset, such as a stablecoin). Define:
- P0: initial price of token A (in token B, e.g., ETH in USDC)
- P1: final price of token A after the price move
- r = P1 / P0: the price ratio (how many times the price has changed)
For a 50/50 pool without fees, the standard impermanent loss formula as a fraction of the HODL value is:
To convert this into a percentage impermanent loss, multiply by 100. This formula captures how much less your liquidity position is worth compared to simply holding both tokens in the original 50/50 proportion.
How this impermanent loss calculator works
This calculator applies the standard constant-product, 50/50-pool formula and related relationships to estimate:
- Price change / price ratio: how far the price has moved relative to your entry.
- Impermanent loss (%): how much value you give up versus HODLing, ignoring any trading fees earned.
- Portfolio values: the notional value of your LP position versus the value if you had held your tokens outside the pool.
You can model different scenarios by varying the price ratio or the percentage price move. Positive moves (price going up) and negative moves (price going down) both generate impermanent loss whenever the final price differs from the initial price.
Interpreting the results
When you run the calculator, focus on these key outputs:
- Impermanent loss (%): a negative percentage indicates how much less your LP position is worth compared with HODLing. For example, -5% means that, after the price move and pool rebalancing, you have 5% less value than if you had simply held the original tokens.
- LP value vs HODL value: the absolute dollar (or token) amounts for each scenario. This shows the trade-off between earning fees and taking on IL risk.
- Break-even intuition: in practice, LP fees can offset impermanent loss. If the cumulative fees you expect to earn are larger than the IL, providing liquidity may still be attractive.
Worked example
Suppose you are considering adding liquidity to an ETH/USDC 50/50 pool. At the time you enter:
- ETH price (P0) = 1,000 USDC
- You deposit 1 ETH and 1,000 USDC, for a total of 2,000 USDC of value
Later, ETH doubles in price to 2,000 USDC (P1 = 2,000). The price ratio is:
r = P1 / P0 = 2,000 / 1,000 = 2
Plugging into the formula:
- sqrt(r) = sqrt(2) โ 1.4142
- 2 ร sqrt(r) โ 2.8284
- r + 1 = 2 + 1 = 3
- 2 ร sqrt(r) / (r + 1) โ 2.8284 / 3 โ 0.9428
Therefore:
IL = 1 โ 0.9428 โ 0.0572, or about 5.72% impermanent loss.
What does this mean in practice?
- If you had HODLed: 1 ETH would now be worth 2,000 USDC, and your 1,000 USDC is still 1,000 USDC, for a total of 3,000 USDC.
- As an LP: the pool has rebalanced your share to hold more USDC and less ETH. Your LP position might be worth around 2,828 USDC (exact numbers depend on pool math), which is 5.72% less than 3,000 USDC.
The 5.72% is your impermanent loss. If you earned more than 5.72% in trading fees over the same period, your net outcome as an LP could still be better than HODLing.
Impermanent loss vs HODLing and realized loss
The table below summarizes how impermanent loss compares with simply holding your tokens and with realized loss from selling:
| Scenario | What you do | How value changes | Key takeaway |
|---|---|---|---|
| HODLing | Keep your tokens in a wallet, no LP position. | Portfolio value moves 1:1 with price of each token. | No impermanent loss, but no trading-fee income either. |
| Providing liquidity (no fees) | Deposit tokens into a 50/50 AMM pool. | Pool rebalances; you end up with more of the underperforming asset, less of the outperforming one. | When prices move, LP value generally lags behind HODLing; this gap is impermanent loss. |
| Providing liquidity (with fees) | Same as above, but traders pay swap fees that accrue to LPs. | IL still occurs, but fee income can partially or fully offset it. | If fees > IL, LP returns can beat HODLing despite price divergence. |
| Realized loss from selling | Manually sell tokens at a lower price than you bought. | Loss becomes permanent at the moment of sale. | Unlike IL, there is no chance of recovery if prices later revert. |
Assumptions and limitations
This impermanent loss calculator is an educational tool and makes several simplifying assumptions:
- AMM type: assumes a constant-product (xยทy = k), two-asset, 50/50 pool similar to Uniswap v2.
- No fees in the core IL formula: trading fees are not baked into the IL percentage; you should compare estimated IL with your own fee assumptions separately.
- No slippage or price impact: uses spot prices and does not simulate trade-by-trade path or large price impact.
- No IL protection: protocols with IL insurance, dynamic fees, or concentrated liquidity (e.g., Uniswap v3, Arrakis, etc.) may have very different risk profiles.
- Stable external prices: assumes you can exit the pool at the final price without additional volatility between calculation and exit.
- Indicative only: results are approximations and may not match exactly what you see on-chain or in protocol analytics.
Important: none of the outputs from this calculator constitute financial, investment, or tax advice. DeFi markets are volatile and risky. Always do your own research and consider your risk tolerance before providing liquidity.
How to use: Practical ways to use this calculator
- Scenario testing: check how much impermanent loss you might face if a token doubles, halves, or moves by a smaller percentage.
- Fee vs IL comparison: combine your IL estimates with typical annualized fee yields for the pool to judge whether the trade-off seems reasonable.
- Risk management: use IL estimates to size your LP positions conservatively, especially for volatile or long-tail tokens.
Use this page as a starting point to understand impermanent loss mechanics and to build intuition before committing significant capital to any DeFi liquidity pool.
Formula: how the estimate is built
The result can be read as result = f(a, b), where those inputs represent Final price vs initial price (ratio), Initial total investment in pool. Keep money, time, distance, percentage, and count fields in the units requested by the form.
Arcade Mini-Game: LP Liquidity Pool Impermanent Loss Calculator Calibration Run
Use this quick arcade run to practice separating useful scenario inputs from common planning mistakes before you rely on the calculator output.
Start the game, then use your pointer or arrow keys to catch useful inputs and avoid bad assumptions.
Results
Disclaimer: This calculator provides educational estimates only and does not constitute professional advice. Consult with qualified professionals for your specific situation.