Impermanent Loss Calculator
Estimate the impermanent loss you incur when providing liquidity to an AMM pool after token price shifts. Use this when evaluating whether trading fees outweigh the drag from price divergence.
About this calculator
Impermanent loss (IL) occurs when the price ratio of tokens in an AMM liquidity pool changes from the time you deposited them. For a standard 50/50 pool, IL is calculated as: IL = initialLiquidity × (2 × √(currentPrice / initialPrice) / (1 + currentPrice / initialPrice) − 1). This formula captures how the AMM's constant-product rebalancing forces you to hold more of the depreciating token and less of the appreciating one compared to simply holding. The loss is called 'impermanent' because it reverses if prices return to the original ratio. Accumulated trading fees are added back to give your net gain or loss: Net = IL + tradingFees. Comparing this figure against the alternative of just holding your tokens reveals whether providing liquidity was profitable.
How to use
Suppose you deposit $10,000 into a 50/50 pool when ETH is priced at $1,000 (initialPrice = 1). ETH later rises to $2,000 (currentPrice = 2). Step 1 — compute the price ratio: 2/1 = 2. Step 2 — apply the IL factor: 2 × √2 / (1 + 2) − 1 = 2 × 1.4142 / 3 − 1 = 0.9428 − 1 = −0.0572. Step 3 — multiply by initial liquidity: $10,000 × (−0.0572) = −$572. Step 4 — add trading fees of, say, $200: Net = −$572 + $200 = −$372. Your net position is $372 worse than simply holding.
Frequently asked questions
What causes impermanent loss in a 50/50 AMM liquidity pool?
Impermanent loss is caused by the constant-product formula (x × y = k) that AMMs use to keep pools balanced. When one token appreciates, arbitrageurs buy it from the pool, leaving LPs with more of the cheaper token and less of the expensive one. This automatic rebalancing means LPs always underperform a simple hold strategy when prices diverge. The larger the price change in either direction, the greater the impermanent loss.
How do trading fees offset impermanent loss for liquidity providers?
Every swap executed through the pool generates a fee — typically 0.05% to 1% of the trade value — distributed proportionally to all LPs. Over time, high trading volume can generate enough fee income to fully offset or even exceed impermanent loss. The break-even point depends on pool fee tier, volume, and price volatility. High-volatility pairs tend to suffer more IL but also attract more arbitrage volume, which can partially compensate LPs.
When does impermanent loss become permanent for a liquidity provider?
Impermanent loss becomes a realized, permanent loss the moment you withdraw your liquidity while the price ratio differs from your entry ratio. If prices return to the original ratio before withdrawal, the IL disappears entirely. This is why the strategy is described as 'impermanent' — it is a paper loss contingent on the withdrawal price. Carefully timing your exit or choosing stablecoin pairs (where price ratios barely move) can help minimize realized losses.