Impermanent Loss Calculator

What Is Impermanent Loss?

Impermanent loss is the difference in value between holding two tokens in a liquidity pool versus simply holding the same tokens in a wallet. It happens because automated market makers (AMMs) automatically rebalance the ratio of the two assets you deposited as their prices move relative to each other. The pool sells the asset that is rising and buys the asset that is falling in order to keep its pricing formula in balance, which means a liquidity provider (LP) ends up holding less of the token that appreciated and more of the token that depreciated, compared with a buy-and-hold approach.

The loss is called "impermanent" because it exists only on paper while your funds remain in the pool. If the prices of the two assets return to the ratio they were at when you deposited, the loss disappears entirely. It only becomes a permanent, realized loss the moment you withdraw your liquidity while the prices remain diverged.

Why Does It Occur? The Constant Product Formula

Most AMMs, including Uniswap V2, price assets using a constant product formula: x · y = k, where x and y are the quantities of the two tokens in the pool and k is held constant by the contract. Whenever a trader swaps one token for the other, arbitrageurs push the pool's internal price back toward the broader market price by trading against that curve. Every trade that corrects the price also shifts the pool's underlying token balances, which is the exact mechanism that creates impermanent loss for every LP in that pool, proportional to their share.

From this formula, the impermanent loss for a 50/50 pool can be expressed purely in terms of the price ratio r (new price divided by initial price):

IL = (2√r / (1 + r)) − 1

This expression is always less than or equal to zero — a 50/50 constant-product pool can never outperform holding the same two assets outright, before fees are considered. The further the price ratio moves from 1 in either direction, the larger the loss becomes, and the formula is symmetric: doubling in price produces identical impermanent loss to falling by half.

How LP Token Value Is Calculated

When you deposit liquidity, the pool issues LP tokens representing your proportional claim on the pool's reserves. As trades occur, your underlying balance of each asset shifts according to the curve above, even though the total dollar value of the pool may still rise if both assets appreciate. Your LP position's value at any moment is simply your share of the pool multiplied by the current value of the reserves — which is exactly what this calculator approximates using your initial investment and the observed price ratio.

Can Trading Fees and Yield Offset the Loss?

Yes — and for actively traded pools, this is usually the whole point of providing liquidity. Every swap that passes through the pool pays a fee (commonly 0.05%–1% depending on the protocol and pool tier), and that fee is distributed to LPs in proportion to their share. High-volume pairs can generate enough cumulative fee income to outweigh impermanent loss over time, especially for correlated assets that don't diverge much in price. Many protocols layer additional liquidity-mining rewards or governance-token incentives on top of base trading fees specifically to compensate LPs for taking on impermanent loss risk. This calculator lets you enter both fees earned and additional rewards so you can see your net outcome, not just the raw impermanent loss figure.

Managing Impermanent Loss Risk

A few practical levers can reduce exposure. Pairing correlated or pegged assets (such as two stablecoins, or a liquid-staking token paired with its underlying asset) keeps the price ratio close to 1 and therefore keeps impermanent loss small. Favoring pools with strong, consistent trading volume increases the odds that fee income outpaces any divergence. Concentrated-liquidity designs (like Uniswap V3) let you focus capital in a tighter price range to earn more fees per dollar, but this also amplifies impermanent loss if price exits that range, so it raises both the potential reward and the potential downside. Diversifying across multiple pools and time horizons, and avoiding highly volatile or thinly traded pairs, are common ways experienced LPs manage this risk.

Worked Example

Suppose you deposit $10,000 into an ETH/USDC pool when ETH is priced at $2,000. If ETH later rises to $3,200, the price ratio r is 1.6. Plugging that into the formula gives an impermanent loss of roughly −2.70%, meaning your LP position would be worth about $351 less than if you had simply held the original ETH and USDC ($12,649 versus $13,000). If that pool generated $400 in trading fees over the same period, those fees would more than offset the dollar value of the loss, leaving you net ahead of HODLing.

How to Use This Calculator

1. Enter the initial asset price at the time you provided liquidity.
2. Enter the new asset price you want to test, or the current market price.
3. Enter your initial investment amount in dollars.
4. Optionally add your pool share, trading fees earned, and any additional rewards.
5. Click Calculate to see your impermanent loss, LP value, HODL comparison, and net outcome — then export a PDF report if you'd like to save or share it.