Impermanent Loss Calculator
Calculate the impermanent loss on any constant-product AMM liquidity pool position. See how price divergence affects your returns versus simply holding, and whether trading fee income offsets the loss.
This calculator uses the standard constant-product AMM formula (Uniswap v2 style). Results will differ for concentrated liquidity AMMs (Uniswap v3), stable AMMs (Curve), or other protocol designs.
Quick Scenarios
Value of Token A at time of deposit
Value of Token B at time of deposit
100 = unchanged · 200 = doubled · 50 = halved
Typical range: 5–50% for active pools. Check your pool's 24h fee APR on the protocol dashboard.
Uses the constant-product AMM formula. Results are illustrative only. Actual LP returns depend on pool depth, fee tier, and trading volume. Not financial advice.
What Is Impermanent Loss?
When you provide liquidity to an AMM (automated market maker), you deposit two tokens in a fixed ratio. The AMM algorithm continuously rebalances your position as prices change — buying the cheaper token and selling the more expensive one. This rebalancing is what creates impermanent loss.
The loss is called "impermanent" because it only becomes real when you withdraw. If prices return to their original ratio, the loss disappears entirely. But if you withdraw while prices have diverged, the loss is locked in.
Impermanent Loss by Price Change
| Price Change (one token) | Impermanent Loss | Fee APY Needed to Break Even |
|---|---|---|
| 1.25× | 0.6% | ~0.6% |
| 1.5× | 2.0% | ~2% |
| 2× | 5.7% | ~6% |
| 3× | 13.4% | ~15% |
| 4× | 20.0% | ~25% |
| 5× | 25.5% | ~34% |
| 10× | 42.5% | ~74% |
Fee APY needed to break even is approximate and assumes fees are earned on the LP value, not the HODL value.
When LP Positions Make Sense
Stable pairs (USDC/USDT, DAI/USDC) have minimal price divergence, so IL is negligible. These pools suit conservative yield seekers.
High-volume pools on major DEXs can generate 20–100%+ APY in fees, which can offset significant IL on volatile pairs.
Pairs like ETH/stETH or BTC/WBTC have correlated prices, reducing divergence risk while still earning fees.
If you plan to withdraw before significant price divergence, IL risk is lower. Long-term LP positions in volatile pairs carry more risk.
Frequently Asked Questions
What is impermanent loss?
Impermanent loss (IL) is the difference in value between holding two tokens in a liquidity pool versus simply holding them in your wallet. It occurs when the price ratio between the two tokens changes after you deposit them. The loss is 'impermanent' because it disappears if prices return to their original ratio — but becomes permanent if you withdraw at a different ratio.
When does impermanent loss become significant?
Impermanent loss grows non-linearly with price divergence. A 2× price change causes about 5.7% IL. A 4× change causes about 20% IL. A 10× change causes about 42% IL. For stable pairs (e.g., USDC/USDT), IL is negligible because prices rarely diverge. For volatile pairs (e.g., ETH/SHIB), IL can easily exceed trading fee income.
How do trading fees offset impermanent loss?
Liquidity providers earn a share of trading fees from every swap in their pool. If the pool generates enough fee income, it can offset or exceed the impermanent loss. High-volume pools with moderate volatility (like ETH/USDC on Uniswap) often generate enough fees to make LP positions profitable despite IL. Low-volume pools rarely do.
Does impermanent loss apply to all DeFi protocols?
Standard impermanent loss applies to constant-product AMMs (like Uniswap v2, SushiSwap). Concentrated liquidity AMMs (like Uniswap v3) can have higher IL within the active range but also earn more fees. Stable AMMs (like Curve) use different formulas that reduce IL for correlated assets. Lending protocols and yield vaults have different risk profiles entirely.
Is impermanent loss tax deductible?
The tax treatment of impermanent loss is complex and varies by jurisdiction. In most countries, IL is not directly deductible — it only becomes a realised gain or loss when you withdraw from the pool. However, the specific tax treatment depends on how your jurisdiction classifies DeFi transactions. Consult a crypto tax professional for guidance specific to your situation.
Understanding impermanent loss
Impermanent loss is one of the most misunderstood concepts in DeFi. The name is misleading: the loss becomes permanent the moment you withdraw your liquidity. It is not a fee or a penalty — it is the opportunity cost of providing liquidity compared to simply holding the same assets.
Whether liquidity provision is worthwhile depends on whether the trading fees earned exceed the impermanent loss incurred. In high-volume, low-volatility pools, fees often compensate. In low-volume or high-volatility pools — particularly those with one highly volatile asset — impermanent loss frequently exceeds fee income. Evaluating both sides of this equation before providing liquidity is essential.
Impermanent loss increases non-linearly with price divergence. A 2x price move causes ~5.7% IL; a 5x move causes ~25.5% IL; a 10x move causes ~42.5% IL. Assets with high volatility — like most altcoins — are significantly more exposed to impermanent loss than stablecoin pairs or correlated asset pairs.
Concentrated liquidity positions (as used in Uniswap v3) can amplify both fee income and impermanent loss. Providing liquidity in a narrow price range earns more fees when the price stays within range, but incurs full impermanent loss and stops earning fees entirely when the price moves out of range.
Providing and removing liquidity are typically taxable events in most jurisdictions. Fee income is usually treated as ordinary income. Impermanent loss may or may not be deductible depending on your jurisdiction. DeFi tax reporting is significantly more complex than simple buy/sell transactions — dedicated tax software is strongly recommended.
Before providing liquidity, compare the expected fee APY against the expected impermanent loss at your assumed volatility level. Also compare against simply staking the same assets or holding them. Liquidity provision is not inherently better or worse than alternatives — it depends entirely on the specific pool, assets, and market conditions.
For most retail investors, the complexity and risk of active liquidity provision rarely justifies the returns compared to simpler alternatives. Staking a single asset at 5–8% APY with no impermanent loss risk is often more appropriate than providing liquidity at 15% APY with significant IL exposure. Evaluate the risk-adjusted return, not just the headline APY.
Your Next Planning Steps
Impermanent loss is one DeFi risk. These tools help you weigh it against alternative strategies like DCA and staking.
Compare liquidity provision returns against a simple DCA strategy on the same asset.
Model staking rewards as a lower-risk alternative to liquidity provision.
DeFi income and impermanent loss have complex tax implications. Estimate your exposure.
These tools are for educational planning purposes only and do not constitute financial advice.
Now that you have your numbers, here are the most useful next steps for your investor journey.
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Methodology: This calculator uses standard financial formulas for illustrative purposes. Results are estimates only and should not be treated as financial advice. Crypto markets are volatile — actual returns will differ from projections. Always consult a qualified financial adviser before making investment decisions. Our editorial standards →