Impermanent Loss Calculator
Calculate the impermanent loss from providing liquidity to an AMM pool.
Results
Visualization
How It Works
The Impermanent Loss Calculator measures the financial loss you may experience when providing liquidity to an automated market maker (AMM) pool due to price divergence between the two tokens. This matters because liquidity providers face the risk of ending up with less value than if they had simply held their tokens, even after earning trading fees. This tool is designed for both quick estimates and detailed planning scenarios. Results update instantly as you adjust inputs, making it easy to compare different approaches and understand how each variable affects the outcome. For best accuracy, use precise measurements rather than rough estimates, and consider running multiple scenarios to establish a realistic range of expected results.
The Formula
Variables
- Initial Token A Price — The price of Token A when you deposited it into the liquidity pool, expressed in dollars
- Initial Token B Price — The price of Token B when you deposited it into the liquidity pool, expressed in dollars
- Current Token A Price — The current market price of Token A at the time of calculation
- Current Token B Price — The current market price of Token B at the time of calculation
- Initial Deposit — The total dollar amount you initially invested to purchase both tokens for the liquidity pool
- Price Ratio Change — The relationship between how much Token A and Token B prices have moved relative to each other since your initial deposit
Worked Example
Let's say you deposit $1,000 into an Ethereum-USDC liquidity pool when ETH is $2,000 and USDC is $1.00, so you receive 0.25 ETH and 500 USDC. Six months later, ETH rises to $3,000 while USDC stays at $1.00. Your initial deposit would be worth $1,250 if you had simply held (0.25 × $3,000 + 500 × $1.00), but due to the AMM's constant product formula rebalancing your holdings as prices moved, you now have 0.204 ETH and 612.37 USDC worth approximately $1,224 at current prices. This $26 difference represents your impermanent loss of about 2.1%, even though ETH gained significantly—the loss occurs because the pool automatically sold some of your ETH as its price rose, locking in gains at lower prices.
Practical Tips
- Impermanent loss is only 'impermanent' until you withdraw from the pool; once you remove your liquidity, the loss becomes permanent. Consider whether your trading fee earnings from the pool will offset this loss before withdrawing.
- The larger the price movement between your two tokens, the greater your impermanent loss. Pools with stable assets like USDC/USDT experience minimal impermanent loss, while volatile pairs like ETH/shiba inu experience much higher losses.
- Check the APY and fee structure of your liquidity pool before depositing; higher trading fees can compensate for impermanent loss. A pool earning 50% APY might offset an expected 5% impermanent loss, making it profitable overall.
- Symmetric price movements (both tokens gaining or losing equally) create less impermanent loss than asymmetric movements. If Token A doubles while Token B stays flat, you suffer more loss than if both doubled together.
- Use this calculator before entering a pool and check it periodically while providing liquidity to understand your actual returns versus hodling. Compare your Pool Value minus initial deposit plus fees earned to your HODL Value to see if liquidity provision was worth it.
Frequently Asked Questions
What exactly is impermanent loss and why does it happen?
Impermanent loss occurs because automated market makers use a mathematical formula (constant product formula) to maintain liquidity, which forces the pool to automatically rebalance your token holdings as prices change. When prices diverge, the pool has automatically sold some of your best-performing token at a lower price than current market value, creating a loss compared to simply holding. It's called 'impermanent' because the loss doesn't materialize until you withdraw your liquidity from the pool.
Can I make money providing liquidity even with impermanent loss?
Yes, absolutely. Liquidity providers earn trading fees every time someone trades in the pool—typically 0.25% to 1% of each trade. If you earn enough in fees to cover and exceed your impermanent loss, you'll be profitable overall. For example, if you have a 5% impermanent loss but earn 8% in fees, you net a 3% profit. Stable coin pairs and high-volume pools are most likely to be profitable this way.
How can I minimize impermanent loss?
Provide liquidity to pools with lower volatility and high trading volume—stablecoin pairs like USDC/USDT have minimal impermanent loss. Avoid volatile altcoin pairs where prices fluctuate wildly. Choose pools with higher fee tiers (1% instead of 0.25%) to earn more fees that offset losses. You can also use concentrated liquidity features in newer AMMs to increase fee earnings in a narrower price range.
Is impermanent loss the same as losing money?
Not necessarily. Impermanent loss is specifically the difference between providing liquidity versus simply holding your tokens. You might still have a net gain after accounting for trading fees earned. For example, if your impermanent loss is $100 but you earned $200 in trading fees, you're up $100 overall. However, if impermanent loss exceeds your fee earnings, then yes, you've lost money.
What's the difference between impermanent loss and slippage?
Impermanent loss affects liquidity providers and represents the opportunity cost of providing liquidity versus holding tokens. Slippage affects traders and is the difference between the expected price and the actual price they receive when executing a trade. These are separate concepts—a trader might experience 1% slippage on their purchase, while a liquidity provider in that same pool might be experiencing impermanent loss from price movements.
Sources
- Uniswap Protocol Documentation - Impermanent Loss
- Investopedia - Automated Market Maker (AMM)
- CoinGecko - DeFi Liquidity Pools Guide