Impermanent Loss Calculator

About Impermanent Loss Calculator

The Impermanent Loss Calculator is an essential DeFi tool for liquidity providers in Automated Market Maker (AMM) protocols like Uniswap, SushiSwap, PancakeSwap, and Balancer. Enter your initial and current token prices along with your investment amount to instantly see your impermanent loss percentage, compare LP returns against a HODL strategy, and determine the break-even fee APY needed to offset your losses.

What is Impermanent Loss?

Impermanent loss is the difference in value between holding tokens in a liquidity pool versus simply holding them in your wallet (the "HODL" strategy). When you provide liquidity to an AMM, you deposit two tokens at a certain price ratio. As the market price changes, arbitrage traders rebalance your pool position, which can result in you having less value than if you had simply held the tokens.

The term "impermanent" is used because the loss only becomes realized (permanent) when you withdraw your liquidity. If the price returns to its original ratio before you withdraw, the loss disappears entirely. However, if you withdraw while prices have diverged, the loss becomes permanent.

Impermanent Loss Formula

Standard 50/50 Pool Formula

For standard AMM pools with equal 50/50 weighting (like Uniswap V2):

$$IL = \frac{2\sqrt{r}}{1 + r} - 1$$

Where $r = P_1 / P_0$ is the price ratio (current price divided by initial price).

Weighted Pool Formula

For Balancer-style weighted pools with weight $w$ for Token A:

$$IL = \frac{r^w}{w \cdot r + (1 - w)} - 1$$

Where $w$ is the pool weight of the volatile token (0.5 for 50/50, 0.8 for 80/20, 0.95 for 95/5).

Impermanent Loss Reference Table

Here are common price change scenarios and their corresponding impermanent loss for a standard 50/50 pool:

Understanding Pool Types

Standard 50/50 Pools

Most AMMs (Uniswap, SushiSwap, PancakeSwap) use 50/50 pools where half your value is in each token. These pools experience the standard impermanent loss curve. The loss is symmetrical -- a 50% price drop and a 100% price increase both result in the same 5.72% loss.

Weighted Pools (80/20, 95/5)

Protocols like Balancer allow weighted pools with unequal ratios. In an 80/20 pool, 80% of your value is in the primary token and 20% in the secondary token. Impermanent loss from price changes in the 80% token is significantly reduced compared to a 50/50 pool. Weighted pools are popular for projects wanting to maintain majority exposure to their native token while still providing liquidity and earning fees.

How to Use This Calculator

1. Select pool type -- Choose 50/50 for standard AMMs like Uniswap, or select 80/20 or 95/5 for Balancer-style weighted pools.
2. Enter initial token price -- Input the price of your volatile token when you first provided liquidity (e.g., enter 2000 if ETH was $2,000).
3. Enter current token price -- Input the current market price of the same token.
4. Enter investment amount -- Your total initial investment in USD. This calculates dollar-denominated gains and losses.
5. Review results -- Results update in real-time showing impermanent loss percentage, HODL value, LP value, dollar loss, and break-even fee APY.

Understanding Your Results

• Impermanent Loss %: The percentage of value lost compared to holding. A -5% IL means your LP position is worth 5% less than if you had just held the tokens.
• HODL Value: What your tokens would be worth if you had simply held them in your wallet without providing liquidity.
• LP Value: The current value of your liquidity position after accounting for impermanent loss (before trading fees).
• Dollar Loss: The actual USD difference between HODL and LP values.
• Break-even Fee APY: The minimum annual trading fee yield needed to offset your impermanent loss. If your IL is 5%, you need at least 5% APY from trading fees to break even.

Strategies to Minimize Impermanent Loss

• Provide liquidity to correlated pairs -- Pairs where both tokens tend to move together (like stablecoin pairs USDC/USDT or wrapped assets) experience minimal IL since the price ratio stays stable.
• Choose high-fee pools -- Pools with higher trading fees generate more fee revenue to offset IL. High-volume pools with elevated fees can often overcome significant IL through fee accumulation.
• Use weighted pools -- If you are bullish on a specific token, an 80/20 or 95/5 weighted pool lets you maintain high exposure while still earning fees, with reduced IL from price increases.
• Time your entry and exit -- Enter pools when you believe the price ratio is relatively stable and avoid withdrawing during extreme price divergence.
• Use concentrated liquidity -- Uniswap V3 allows concentrated liquidity within price ranges, optimizing returns if prices stay within your chosen range.

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