Impermanent Loss Calculator
Calculate liquidity pool impermanent loss.
Formula
IL = 2√r/(1+r) - 1
Example
ETH 2x while USDC stable → ~5.7% IL.
Understanding the Impermanent Loss
The impermanent loss calculation produces an exact answer for the inputs you provide. The harder question is whether those inputs will hold tomorrow - DeFi yields, token prices, and gas fees move on a timeline traditional finance does not have.
How it actually works
Calculate liquidity pool impermanent loss.
The formula is straightforward arithmetic once the inputs are correct; the value of the calculator is in handling the algebraic manipulation reliably and removing transcription errors. Plug in your specific inputs above and the result appears as you type, so you can immediately see how each variable affects the answer.
What the numbers really say
Stake 10 ETH at 4% APR over 5 years and you receive 2.17 ETH in rewards. But if ETH price moves from $2,000 to $4,000 over that period, the dollar value of your principal doubles while the rewards (paid in ETH) also double. Conversely, if price drops to $1,000, the rewards' dollar value halves. Crypto returns depend on protocol mechanics AND token-price movement together.
The deeper context most users miss
Crypto valuation is uniquely difficult because most traditional valuation methods do not apply - there is no cash flow, no earnings, no intrinsic value anchor in the way equities and real estate offer. Bitcoin's price reflects a combination of network effects, scarcity, and macro positioning rather than discounted cash flows. This creates a math problem for calculators: any projection is heavily dependent on the assumed appreciation rate, which has historically ranged from -80% in a year to +1000% in a year. A useful framing: use crypto calculators to understand mechanics (yield, impermanent loss, transaction costs) rather than to project returns. The returns are nearly unforecastable; the mechanics are precise.
What people get wrong
- Confusing APY with APR. APY assumes compounding; APR is simple. DeFi protocols often quote peak APY at conditions that are not sustained.
- Ignoring impermanent loss. A 30% APY liquidity pool with 25% impermanent loss leaves you with 5% - and possibly negative if token prices diverge further.
- Forgetting US tax treatment. Every swap, staking reward, and airdrop is potentially taxable. A profitable year on paper can produce a tax bill larger than your remaining cash.
- Treating high-yield as a savings account. A 100% APY stablecoin pool either has a hidden risk (smart contract, custodial) or is unsustainable.
When this calculator helps most
The impermanent loss calculator is most useful when you are making a real decision - comparing options, sizing a commitment, sanity-checking a quote, or planning ahead. The output is precise to your inputs; the inputs themselves are the place to slow down. Spend extra time on the assumptions you are making about rate, term, timing, or context-specific variables - those swing the answer far more than the formula's arithmetic does. A 5% change in the input often produces a 10-20% change in the output, which means small input errors compound into large output errors.
Where the math comes from
Standard yield, impermanent loss, and APY formulas are documented in academic DeFi research (Werner et al., 2022; Lehar & Parlour, 2021). For specific protocol mechanics, the underlying smart contract code is the authoritative source. CoinGecko and CoinMarketCap track current pricing.
Questions and answers
What is impermanent loss?
Impermanent loss is the difference between holding two tokens versus putting them in a liquidity pool, when their prices diverge. The automated market maker rebalances your position as prices move, leaving you with more of the falling token and less of the rising one compared to simply holding.
Why is it called 'impermanent'?
Because the loss only becomes real when you withdraw. If the token prices return to their original ratio, the loss disappears entirely. It's a paper loss until you exit the pool — which is also why it can quietly become a permanent loss if you withdraw at the wrong time.
When is impermanent loss worst?
It grows as the two tokens diverge in price. A pair where both tokens move together (like two stablecoins) has almost no IL. A volatile token paired with a stablecoin has the most. A 2x price divergence causes about 5.7% loss; a 5x divergence causes about 25%.
Do trading fees offset impermanent loss?
Often, yes — that's the whole point of providing liquidity. High-volume pools generate enough trading fees to outweigh moderate IL. The question for any LP position is whether expected fees exceed expected impermanent loss, which depends on volume and how volatile the pair is.
How do I avoid impermanent loss?
Provide liquidity for correlated or stablecoin pairs where prices stay close, choose high-fee-volume pools, or use protocols with IL protection. The simplest way to avoid it entirely is to not provide liquidity for volatile pairs you expect to move sharply in one direction.
Sources & References
Authoritative references consulted in building this calculator and educational content. These are primary sources — check directly for the most current figures.
Related calculators
Liquidity Pool Returns · Mining Profitability · Crypto Portfolio Allocation · Crypto Gas Fee · Crypto Rebalancing