Calculate impermanent loss in liquidity pools. Understand how price divergence affects your LP positions.
Quick Presets:
Initial price of Token A
Initial price of Token B
Price change of Token A
Price change of Token B
Total value in liquidity pool
Trading fee percentage
How long you provide liquidity
Any additional fees earned
$2,000.00
If just held tokens
$2,000.00
Value in pool
$0.00
0.00% loss
0.00%
Price ratio change
$0.25
Total fees earned
$0.25
Fees - IL
| Scenario | Token A | Token B | Total |
|---|---|---|---|
| Initial | 500.0000$500.00 | 500.0000$500.00 | $1000.00 |
| HODL | 500.0000$1000.00 | 500.0000$1000.00 | $2000.00 |
| LP | 500.0000$1000.00 | 500.0000$1000.00 | $2000.00 |
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Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to when you deposited. The loss is "impermanent" because it only becomes permanent if you withdraw during the price divergence.
Simple Example:
If both tokens should be $1000 each but one becomes $2000, you'll have less value than if you just held the tokens.
Significant price divergence between pool tokens
High volatility increases IL risk
Less fees to offset potential losses
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IL comes from the constant product formula (x * y = k). When prices change, the pool rebalances to maintain the constant product, resulting in different token distribution than holding.
IL = (2 * sqrt(price_ratio)) / (1 + price_ratio) - 1
Where price_ratio = new_price / original_price
Maximum IL (~25%) occurs when one token increases 4x vs the other.
| Price Change | Description | IL | Req. Fee Yield* |
|---|---|---|---|
| 1.25x | 25% price gap | 0.6% | 2.2% APY |
| 1.5x | 50% price gap | 2.0% | 7.3% APY |
| 2x | 100% price gap | 5.7% | 20.8% APY |
| 3x | 200% price gap | 13.4% | 48.9% APY |
| 4x | 300% price gap | 20.0% | 73.0% APY |
| 5x | 400% price gap | 25.5% | 93.1% APY |
*Annual fee yield to break even
Use this calculator to make informed LP decisions. Understanding IL is key to profitable DeFi.
Some protocols adjust fees based on volatility
Protocols like Bancor offer IL protection
Concentrated liquidity within specific price ranges
Use options or perpetuals to hedge price divergence
In 2021 bull run, many ETH/altcoin LPs experienced significant IL. While ETH increased 5x, some altcoins increased 50-100x. LPs would have been better off holding tokens separately.
This calculator provides estimates. Actual IL may vary based on pool implementation, fee structures, and market conditions. Liquidity provision involves risks including impermanent loss, smart contract risk, and market risk. This tool is for educational purposes only and should not be considered financial advice. Always do your own research.