What is Impermanent Loss?
Understand the risks of providing liquidity to AMM pools and how to calculate IL.
Impermanent loss is the hidden cost of providing liquidity — when token prices move, your pool value drops below what you'd have by simply holding. A 2x price change means ~5.7% IL; a 5x change means ~25.5% loss. Calculate your exact IL risk before depositing into any pool.
Why Does It Happen?
Automated Market Makers (AMMs) like Uniswap use mathematical formulas to maintain the ratio of assets in a pool. When the market price changes, arbitrageurs trade with the pool to keep it aligned, which "steals" some of your gains compared to just holding.
- Price divergence between the two assets
- Automatic rebalancing of the pool
- Arbitrage activity
- Market volatility
How Do You Calculate Impermanent Loss?
IL is the difference between the value of your assets in the pool versus the value if you had just held them in your wallet (HODL).
| Price Change | IL % | Pool Value ($10K) | HODL Value | Loss |
|---|---|---|---|---|
| 1.5x | ~2.0% | $9,800 | $10,000 | $200 |
| 2x | ~5.7% | $9,430 | $10,000 | $570 |
| 3x | ~13.4% | $8,660 | $10,000 | $1,340 |
| 5x | ~25.5% | $7,450 | $10,000 | $2,550 |
| 10x | ~42.3% | $5,770 | $10,000 | $4,230 |
IL formula: 2√d/(1+d)−1 where d = price ratio. Applies to constant-product AMMs (Uniswap v2).
How Can You Minimize Impermanent Loss?
- Provide liquidity to stablecoin pairs
- Choose pairs with high correlation
- Wait for prices to return to original levels
- Earn enough trading fees to offset the loss
What Is an Impermanent Loss Example?
You provide 1 ETH and 2,000 USDC to a pool. If ETH price doubles, you would have been better off just holding the ETH in your wallet. The "missing" value is your impermanent loss.
How to Use the Calculator?
- Enter the initial prices of both tokens
- Enter the final (current or expected) prices
- Enter the total amount invested
- Analyze the difference between Pool Value and HODL Value
Impermanent Loss
Calculate impermanent loss when providing cryptocurrency liquidity in AMM pools. Understand the risks before you start.
Calculate ILData Sources
Price data provided by CoinGecko — one of the world's largest cryptocurrency data aggregators. All calculations are performed locally in your browser.
FAQ
1. Is impermanent loss permanent?
It is "impermanent" as long as you keep your assets in the pool. If prices return to their original ratio, the loss disappears. It becomes permanent once you withdraw.
2. Can trading fees cover the loss?
Yes. If the pool has high volume, the fees you earn can be greater than the impermanent loss, resulting in a net profit.
3. Which pools have the most IL?
Pools with highly volatile assets or "meme coins" typically experience the most impermanent loss due to wild price swings.
4. Should I avoid providing liquidity?
Not necessarily. You just need to be aware of the risk and ensure the rewards (fees + incentives) outweigh the potential IL.
5. Does Bitcoin have impermanent loss?
Bitcoin itself doesn't, but if you provide "Wrapped Bitcoin" (WBTC) to a liquidity pool, you are exposed to IL relative to the other asset in the pair.
