impermanent loss calculator

What is impermanent loss?

Impermanent loss is the difference between two outcomes: (1) providing assets as liquidity in an automated market maker (AMM), and (2) simply holding those same assets in your wallet. When token prices move away from your entry ratio, AMM rebalancing changes your token quantities. That rebalancing is why your final value can be lower than HODLing, even if the position still shows a profit in dollar terms.

It is called “impermanent” because the gap can shrink if prices return to where they started. But if you withdraw while prices are still moved, the loss becomes realized.

How this impermanent loss calculator works

This calculator uses the classic formula for a 50/50 constant-product AMM:

IL = 2 × sqrt(r) / (1 + r) − 1

Where r = new price / initial price for Token A relative to Token B. The tool then translates the percentage into dollar values using your deposit size.

Assumptions

• 50/50 value-weighted liquidity pool.
• Constant-product invariant (x * y = k).
• No extra rewards included (unless entered manually as fees).
• No gas, slippage, or tax effects.

Interpreting your results

1) HODL value

This is what your deposit would be worth if you never provided liquidity and simply kept both assets.

2) LP value (before fees)

This is your expected liquidity position value from AMM mechanics alone, before trading fees or incentives.

3) Impermanent loss (%) and ($)

The percentage shows underperformance vs HODL. The dollar amount shows the value difference in your scenario.

4) Net vs HODL (after fees)

If your earned fees are high enough, your LP position can still outperform HODLing despite impermanent loss. The break-even line helps you see what fee income is needed.

Quick intuition with price moves

• No price move (r = 1): impermanent loss is 0%.
• Price doubles (r = 2): impermanent loss is about 5.72%.
• Price triples (r = 3): impermanent loss is about 13.40%.
• Price drops 50% (r = 0.5): impermanent loss is also about 5.72%.

Notice symmetry: a 2x increase or 50% drop can produce the same IL percentage because the formula depends on relative ratio changes.

Ways to manage impermanent loss risk

• Choose correlated pairs: assets that move together usually produce lower IL.
• Focus on active pools with strong fees: fee income can offset IL.
• Monitor volatility: high volatility generally raises IL risk.
• Use position sizing: keep LP allocations proportional to risk tolerance.
• Consider concentrated liquidity carefully: it can improve fee efficiency but may increase management complexity and out-of-range risk.

Limitations and important context

This calculator is a simplified educational model. Real DeFi returns depend on fee tiers, liquidity depth, volatility regime, trading volume, reward emissions, token fundamentals, smart contract risk, and execution costs. Use this tool as a planning aid, not a guarantee of future performance.

Frequently asked questions

Is impermanent loss always a real loss?

Not always. It is measured against HODLing. Your LP position can still be profitable in absolute terms if the market rises or if fees are strong.

Can fees fully offset impermanent loss?

Yes, in many cases. That is exactly why fee projections and volume analysis matter before providing liquidity.

Does this apply to all AMMs?

The core idea applies broadly, but exact outcomes vary by AMM design (constant product, stable swap, concentrated liquidity, dynamic fees, and more).

Educational use only. This is not financial advice.