Impermanent Loss Calculator
Calculate potential impermanent loss when providing liquidity to an AMM (50/50 pool) like Uniswap.
Impermanent loss is the hidden cost of providing liquidity to a decentralized exchange. It is the gap between what your assets would be worth if you had simply held them, and what they are worth sitting in a liquidity pool. It catches out more first-time liquidity providers than any other DeFi concept — and this calculator makes it concrete.
Why impermanent loss happens
An automated market maker like Uniswap keeps a pool balanced using a constant product formula: the number of Token A multiplied by the number of Token B must stay constant. When the price of one token moves, arbitrage traders rebalance the pool by buying the cheaper token and selling the more expensive one. The result is that the pool automatically sells your winning asset and buys more of your losing one. If ETH doubles while USDC stays flat, the pool ends up holding less ETH and more USDC than you deposited. You captured only part of that ETH gain. It is called 'impermanent' because if prices return to their original ratio, the loss disappears. It becomes permanent the moment you withdraw.
The formula
Value if Held = (Investment ÷ 2) × RatioA + (Investment ÷ 2) × RatioB
Value in Pool = Investment × √(RatioA × RatioB)
Impermanent Loss = Value if Held − Value in Pool
Where RatioA = New Price A ÷ Old Price AThe square root is what drives the whole effect. Because pool value grows with the square root of the price ratio rather than linearly, any divergence in price between the two tokens produces a loss relative to simply holding.
Managing impermanent loss
- 1Impermanent loss is driven by price divergence, not direction. Both tokens rising together by the same percentage produces zero loss. One rising while the other stays flat produces the maximum.
- 2The numbers are worth memorizing: a 2× price divergence costs about 5.7%, a 4× costs 20%, and a 5× costs 25.5%. It is not linear — it accelerates.
- 3Stablecoin pairs like USDC/USDT have almost no impermanent loss because the prices barely diverge. That is why their yields are lower — less risk, less reward.
- 4Trading fees are what make liquidity provision profitable. A pool earning 20% APR in fees can absorb a lot of impermanent loss. Always compare fees earned against expected divergence.
- 5If you are strongly bullish on one token, providing liquidity is usually the wrong move. The pool will sell your winner into strength. Just hold it instead.
Frequently asked questions
Can I actually lose money providing liquidity?
You can end up with less value than if you had held the tokens — that is impermanent loss. Whether you lose money in absolute terms depends on the trading fees you earned. In a high-volume pool, fees frequently exceed impermanent loss. In a low-volume pool with volatile tokens, they often do not.
Why is it called 'impermanent' if I really lost value?
Because the loss reverses if the price ratio returns to where it started. While you remain in the pool, it is an unrealized, potentially temporary loss. The moment you withdraw, you lock it in and it becomes permanent.
Do stablecoin pools have impermanent loss?
Almost none, in normal conditions. USDC and USDT both track $1, so the ratio between them barely moves. The exception is a depeg event — when one stablecoin loses its peg, liquidity providers in that pool absorb the damage.
How do I know if a pool is worth it?
Compare the fee APR against your expected price divergence. If a pool pays 30% APR and you expect the tokens to diverge by 2× over the year (roughly 5.7% loss), you are ahead. If it pays 5% and you expect a 4× divergence (20% loss), you are not.
Does this calculator work for all pools?
It uses the standard 50/50 constant product formula, which covers Uniswap V2 and most classic AMMs. Concentrated liquidity (Uniswap V3) and weighted pools (Balancer 80/20) behave differently — concentrated liquidity in particular amplifies impermanent loss significantly within its range.