Impermanent loss calculator
Price divergence → IL. This calculator shows exactly how much.
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Impermanent loss is the invisible tax on LPing. When the price ratio between two assets in a pool diverges, the AMM rebalances you out of the winner and into the loser. Your pool position ends up worth less than if you'd just held the two tokens separately.
This calculator takes your starting price ratio and ending price ratio (or percentage divergence) and returns IL as a percentage of pool value. Compare that number to fees earned — if fees > IL, you profited.
The word 'impermanent' is misleading because it implies the loss goes away. It only goes away if the price ratio returns exactly to your entry point. Most LP positions are entered during price stability and exited during volatility — precisely the worst time. In the ETH/USDC pool during the 2022 bear market, LPs who entered at ETH $3,000 and exited at ETH $1,000 locked in both a 67% price loss on their ETH exposure and 20%+ IL on top. The IL compounds the directional loss rather than offsetting it.
Understanding IL mechanics lets you select positions intelligently. Stable-stable pools have near-zero IL. ETH/BTC pools have moderate IL because the two assets are correlated. ETH/memecoin pools have extreme IL because memecoins diverge rapidly and often catastrophically. Fee APR needs to exceed projected IL for a position to make financial sense — and fee APR on any pool can drop to near zero during low-volume periods even if the headline number was high when you entered.
LP $20,000 (10 ETH + $20,000 USDC). ETH moves from $2,000 to $4,000
Initial position: 10 ETH at $2,000 + $20,000 USDC = $40,000 total.
Wait — LP is 50/50 split: $20,000 of each = 10 ETH + $20,000 USDC.
After ETH 2x: the pool rebalances. LP now holds ~7.07 ETH + $28,284 USDC.
Pool value: 7.07 × $4,000 + $28,284 = $56,566.
Hold-instead value: 10 ETH × $4,000 + $20,000 USDC = $60,000.
Impermanent loss: ($60,000 − $56,566) / $60,000 = 5.72%.
IL reference table (50/50 pools)
Price ratio change vs starting point, assuming 50/50 constant-product AMM:
- 1.25x or 0.80x: 0.6% IL
- 1.5x or 0.67x: 2.0% IL
- 2x or 0.50x: 5.7% IL
- 3x or 0.33x: 13.4% IL
- 5x or 0.20x: 25.5% IL
When LPing makes sense and when it doesn't
Makes sense: stable-stable pairs (USDC/USDT/DAI) where IL is negligible; long-tail pairs where you want exposure to both assets anyway and fees compensate for divergence; concentrated V3 positions in narrow ranges on actively traded pairs. Doesn't make sense: volatile pairs you expect to diverge wildly (memecoin/ETH); pairs where you're bullish on one and bearish on the other (just hold the bullish one); pools with thin volume where fees don't offset IL.
Fee APR vs IL: how to know if a pool is worth it
The break-even calculation is: you need fee APR > annualized IL rate for the position to beat holding. On a 0.3% fee Uniswap v2 pool, you need roughly 19x your position size in daily trading volume to generate 1% monthly fee return. For a $10,000 LP position, that's $190,000/day in trading volume through your pool. Check actual volume on Uniswap's analytics page before entering.
Uniswap v3 concentrated liquidity pools can generate 5-20x higher fee APR per dollar deployed — but only when price stays within your selected range. A 1% wide range on ETH/USDC earns more fees than a full-range position, but gets zero fees the moment ETH moves outside that range. Track your position's 'time in range' percentage weekly; if it drops below 60%, your effective fee APR is lower than the headline number suggests.
Pool fee tiers matter too. Uniswap offers 0.01%, 0.05%, 0.3%, and 1% tiers. Stable pairs concentrate in 0.01-0.05%. Major pairs (ETH/USDC, ETH/WBTC) are usually most liquid in 0.05% or 0.3%. Exotic pairs often in 1%. The highest-fee tier doesn't mean the highest fee income — volume concentrates where the price is tightest, which may be the lower-fee tier.
Concentrated liquidity (Uniswap V3) IL mechanics
V3 concentrated liquidity doesn't reduce IL — it amplifies it within the range because your capital is leveraged. A 10x concentrated position experiences 10x the IL of an equivalent full-range deposit when price moves through your range. The tradeoff is 10x the fee income when price stays within range.
The practical consequence: tight V3 ranges on volatile assets are a gamble, not a yield strategy. The optimal V3 range is wide enough to stay in range 80%+ of the time while still concentrating enough to generate meaningful fee income above a full-range deposit. For ETH, a ±20-30% range around current price is a common starting point; tighter than ±10% becomes speculation on short-term price stability.
When your V3 position goes out of range, it converts entirely to the cheaper asset. If ETH drops below your range's lower bound, your position becomes 100% ETH at a price below your entry. If ETH rises above the upper bound, your position becomes 100% USDC — you've sold all your ETH and get no further upside. Rebalancing frequently (back to 50/50 by resetting ranges) costs gas and can erode returns in sideways markets.
IL protection mechanisms in DeFi protocols
Several protocols have attempted to compensate LPs for IL. Bancor v2 and v3 offered single-sided liquidity with IL protection funded by protocol-owned reserves — Bancor ultimately paused IL protection in 2022 after reserves became insufficient during the bear market. Thorchain offers IL protection after 100 days of providing liquidity, funded by protocol emissions. These mechanisms work until they don't, and protocol insolvency risk replaces IL risk.
The more sustainable approach is IL mitigation through asset selection. Liquidity mining programs on correlated pairs (ETH/stETH, USDC/USDT, BTC/WBTC) offer fee income with minimal IL because the underlying assets track each other. The Curve Finance model built an entire protocol around this principle — stableswap math produces near-zero IL for like-kind assets while still generating fee income from arbitrageurs maintaining the peg.
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Impermanent loss — frequently asked questions
Why is it called 'impermanent'?
Because it's only realized when you withdraw. If the price ratio returns to your entry, IL goes to zero. In practice, most LPs withdraw after divergence, converting 'impermanent' into very permanent losses. Better term: divergence loss.
Do stablecoin pools have impermanent loss?
Technically yes — when USDC depegs or USDT wobbles, a USDC/USDT pool has tiny IL measured in basis points. Practically: for like-kind stable pairs (Curve 3pool), IL is rounding-error small. When a stablecoin fails outright (UST in May 2022), LPs lose almost everything as the AMM sells them all the collapsing asset.
Can concentrated liquidity (Uniswap V3) reduce IL?
Not directly — V3 actually amplifies IL within the range because you're leveraged. But you earn much higher fees per dollar of liquidity. The tradeoff: more fee revenue vs amplified IL. V3 tight-range positions work when you're confident in a price range and the pair is high-volume; they blow up when price exits the range.
How do I actually calculate IL without a calculator?
For 50/50 pools: IL = 2·sqrt(r) / (1 + r) − 1, where r is the price ratio change (ending ratio / starting ratio). Memorize the reference table above and you can eyeball most scenarios.
Is IL tax-deductible when I withdraw at a loss?
In the US: withdrawing LP tokens at a lower USD value than deposit generates a capital loss that can offset gains. Document entry and exit clearly — LP accounting is where crypto tax software earns its keep. Lost USD value ≠ IL directly; some of your loss may be price-related, some IL-related.
How much volume does a pool need for me to break even on IL?
At 0.3% fees with a 50/50 ETH/USDC pool: break-even requires fee income to match IL. For a 2x ETH price move (5.72% IL), you need to earn 5.72% of your position in fees. On a $10,000 position, that's $572. At 0.3% per trade, you need roughly $190,667 in pool volume routed through your share of the pool. Check 7-day volume on Uniswap analytics before entering any position.
What pairs have the lowest historical IL?
Historically lowest IL: USDC/USDT (effectively 0%, near-perfect peg), ETH/stETH (near-zero, both track ETH), WBTC/cbBTC (near-zero, both track BTC). Moderate IL: ETH/WBTC (correlated but diverge 20-40% over months). High IL: any ETH/altcoin pair where the altcoin has 3-10x volatility relative to ETH. Avoid LP positions in ETH/memecoin pools unless fees are north of 200% APR.
Can I LP on just one asset instead of a pair?
Uniswap V3 allows single-sided entry by choosing a range entirely above or below current price — but that's effectively a limit order, not traditional LP. Protocols like Maverick and Gamma offer single-sided strategies that auto-manage positions. Bancor originally offered true single-sided LP before pausing its IL protection program. For most AMMs, you need both assets; single-sided products add smart contract risk on top of the underlying IL.
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