DeFi Impermanent Loss Calculator

Impermanent loss

Impermanent loss (IL) measures how much worse off a liquidity provider (LP) ends up in an AMM pool versus just holding (HODL) the same tokens. The reason is mechanical: the constant product formula (x × y = k) keeps rebalancing the pool as prices shift. The formula is IL = 2√r / (1+r) − 1, with r standing for the price ratio. To get a feel for it, run a few examples. ETH doubling (r=2) gives an IL of about 5.7%. A 4x move pushes it to roughly 20%, and a 10x move to around 42%. People call the loss "impermanent" because once the price drifts back to where it started, the IL vanishes. Withdraw before that happens and it locks in for good.

Applications

This is one of the big decisions anyone providing liquidity on AMMs faces, whether on Uniswap v2/v3, SushiSwap or PancakeSwap. Curve keeps IL low between stablecoins because the pairs are pegged. The fee farming offset is the math that matters here: the fees you collect have to outrun the IL before you come out ahead of HODL. Concentrated pools on Uni v3 turn up both the fees and the IL. Common ways to manage it include stable-stable pools such as USDC/USDT, correlated pairs like stETH/ETH, or IL hedging through options.

FAQ

How to avoid IL? Stick to stablecoin pools like the Curve 3pool, choose correlated assets, or skip LP altogether and stake instead.

Do fees compensate for IL? That comes down to volume × time × concentration. High-volume volatile pools like ETH/USDC usually pull it off; thin, low-volume pools almost never do.

Does Uni v3 have more or less IL? Proportionally more, since the capital is concentrated, but you also earn more fees while the range stays active. It is a risk-reward bet.

Is IL the same as loss? Not really. Think of it as an opportunity cost measured against HODL. When both tokens rise you still come out ahead, just by less than if you had held them directly.