Impermanent Loss Calculator
Use our free Impermanent loss Calculator to plan your crypto trading strategy. Get detailed breakdowns, charts, and actionable insights.
Calculator
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IL Reference Table
Formula
Impermanent loss is calculated using the price ratio between the current and initial price of the volatile token in a 50/50 liquidity pool. This calculator assumes one asset is a stablecoin (e.g., USDC) whose price does not change, and Token A is the volatile asset. The formula compares the value of assets in the pool (LP value) to the value if you had simply held the assets (hold value). The result is always negative or zero, representing the percentage loss from providing liquidity.
Last reviewed: December 2025
Worked Examples
Example 1: ETH Price Increase in ETH/USDC Pool
Example 2: Token Price Drop by 50%
Background & Theory
The Impermanent Loss Calculator applies the following established principles and formulas. Foreign exchange markets facilitate the conversion of one currency into another and serve as the largest and most liquid financial markets in the world, with daily turnover exceeding seven trillion US dollars. Exchange rates are quoted as currency pairs, expressing the price of one unit of a base currency in terms of a quote currency. For example, a EUR/USD rate of 1.0850 means one euro buys 1.0850 US dollars. The smallest standardized price movement in most pairs is the pip, typically the fourth decimal place, with a value of 0.0001 per unit for USD-denominated pairs. The bid price is the rate at which a dealer will buy the base currency, while the ask price is the rate at which it will sell. The spread between bid and ask represents the dealer's compensation and varies with liquidity and volatility. Leverage amplifies both gains and losses by allowing traders to control positions larger than their deposited margin. A 100:1 leverage ratio means a one-percent adverse move eliminates the entire margin, making position sizing and risk management critical. Two parity conditions from international economics anchor exchange rate theory. Purchasing Power Parity (PPP) holds that exchange rates should adjust over time so that identical goods trade at equivalent prices across countries: S = P_d / P_f, where S is the spot rate and P_d and P_f are domestic and foreign price levels. PPP performs well over long horizons but poorly in the short run due to trade barriers, non-tradable goods, and capital flows. Covered Interest Rate Parity (CIRP) is a near-arbitrage condition stating that forward exchange rate premiums or discounts exactly offset interest rate differentials between two currencies: F/S = (1 + r_d) / (1 + r_f). Deviations from CIRP create riskless arbitrage opportunities that traders rapidly eliminate. Uncovered Interest Rate Parity posits that high-yielding currencies should depreciate to offset their interest advantage, though empirical evidence is mixed and the carry trade — borrowing in low-rate currencies to invest in high-rate ones — has generated persistent returns.
History
The history behind the Impermanent Loss Calculator traces back through the following developments. For much of the nineteenth century and early twentieth century, the international monetary system operated under the classical gold standard, under which each participating currency was fixed to a defined weight of gold, making bilateral exchange rates effectively constant. The system provided price stability and facilitated global trade but constrained governments' ability to respond to economic downturns. World War One shattered the gold standard as nations suspended convertibility to finance wartime expenditures. The interwar period saw attempts to restore gold convertibility, most notably the British return to the gold standard in 1925 at the pre-war parity, a decision criticized by John Maynard Keynes as deflationary. The Great Depression forced widespread currency devaluations and the effective collapse of the international gold standard by the early 1930s. The Bretton Woods Conference of July 1944 established a new order in which member currencies were pegged to the US dollar, while the dollar alone was convertible into gold at 35 dollars per troy ounce. The International Monetary Fund and World Bank were created at the same conference to oversee the system. Bretton Woods delivered exchange rate stability during the postwar growth era but came under strain as US deficits and European dollar accumulation outpaced American gold reserves. On August 15, 1971, President Nixon announced the suspension of dollar-gold convertibility — the so-called Nixon Shock — effectively ending the Bretton Woods system. By 1973, major currencies had transitioned to floating exchange rates determined by market supply and demand, a regime that has persisted. On September 16, 1992, hedge fund manager George Soros shorted the British pound against the European Exchange Rate Mechanism constraints, forcing the UK's withdrawal in what became known as Black Wednesday. Electronic trading platforms emerged in the 1990s and 2000s, replacing voice-brokered interbank markets and dramatically reducing transaction costs for institutional and retail participants alike.
Key Features
- Track crypto portfolio profit and loss by entering purchase prices and quantities across multiple assets, with realized and unrealized gain breakdowns updated against current prices.
- Calculate mining profitability by inputting hash rate, power consumption, electricity cost, pool fees, and current block reward to determine daily and monthly net income.
- Estimate staking rewards and compare validators or protocols by computing effective APY from base reward rates, compounding frequency, and lock-up period constraints.
- Estimate Ethereum and EVM-compatible network gas fees in both gwei and fiat currency for common transaction types including transfers, swaps, and contract interactions.
- Convert between APR and APY for DeFi lending and liquidity pool positions, accounting for compounding intervals to compare protocols on an equivalent basis.
- Model dollar-cost averaging strategies by projecting portfolio value across weekly or monthly purchase schedules at varying price growth assumptions.
- Calculate capital gains or losses for crypto disposals using FIFO, LIFO, or specific lot identification methods to support accurate tax reporting.
- Analyze token economics by computing fully diluted market cap, circulating supply ratio, and how scheduled unlock events may affect per-token value over time.
Frequently Asked Questions
Formula
IL = 2 × √(price_ratio) / (1 + price_ratio) - 1
Impermanent loss is calculated using the price ratio between the current and initial price of the volatile token in a 50/50 liquidity pool. This calculator assumes one asset is a stablecoin (e.g., USDC) whose price does not change, and Token A is the volatile asset. The formula compares the value of assets in the pool (LP value) to the value if you had simply held the assets (hold value). The result is always negative or zero, representing the percentage loss from providing liquidity.
Worked Examples
Example 1: ETH Price Increase in ETH/USDC Pool
Problem: You provide $10,000 to an ETH/USDC pool when ETH is $3,000. ETH rises to $4,500. What is your impermanent loss?
Solution: Price ratio = $4,500 / $3,000 = 1.5\nIL = 2 × sqrt(1.5) / (1 + 1.5) - 1 = 2 × 1.2247 / 2.5 - 1 = -1.96%\nHold Value = $10,000 × (1 + 1.5) / 2 = $12,500\nLP Value = $12,500 × (1 - 0.0196) = $12,255\nDollar Difference = -$245
Result: IL: ~1.96% | Hold Value: $12,500 | LP Value: ~$12,255 | Loss: ~$245
Example 2: Token Price Drop by 50%
Problem: You provide $20,000 to a TOKEN/USDC pool. Token A drops from $100 to $50. Calculate the impermanent loss.
Solution: Price ratio = $50 / $100 = 0.5\nIL = 2 × sqrt(0.5) / (1 + 0.5) - 1 = 2 × 0.7071 / 1.5 - 1 = -5.72%\nHold Value = $20,000 × (1 + 0.5) / 2 = $15,000\nLP Value = $15,000 × (1 - 0.0572) = $14,142\nDollar Difference = -$858
Result: IL: ~5.72% | Hold Value: $15,000 | LP Value: ~$14,142 | Loss: ~$858
Frequently Asked Questions
What is impermanent loss in DeFi?
Impermanent loss (IL) is the difference in value between holding tokens in a liquidity pool versus simply holding them in your wallet. It occurs because automated market makers (AMMs) like Uniswap constantly rebalance the ratio of tokens in the pool as prices change. When one token's price increases relative to the other, the AMM sells the appreciating token and buys the depreciating one, resulting in fewer of the winning token than if you had just held. The loss is called 'impermanent' because it only becomes permanent if you withdraw your liquidity. If the token prices return to their original ratio, the impermanent loss disappears.
How is impermanent loss calculated?
Impermanent loss is calculated using the formula: IL = 2 × sqrt(price_ratio) / (1 + price_ratio) - 1, where price_ratio is the current price divided by the initial price of the volatile token. For a 50/50 liquidity pool, if one token doubles in price (2x), the IL is approximately 5.7%. If it triples (3x), IL is about 13.4%. If it goes to 5x, IL reaches 25.5%. The formula applies regardless of which direction the price moves — a 50% price decrease also results in 5.7% IL. This means any deviation from the initial price ratio results in some degree of impermanent loss, with larger deviations causing exponentially greater losses.
Can trading fees offset impermanent loss?
Yes, trading fees earned from the liquidity pool can offset impermanent loss, and this is the primary reason liquidity providers participate despite IL risk. Every time someone trades through the pool, a fee (typically 0.3% on Uniswap V2) is distributed proportionally to all liquidity providers. High-volume pools with many trades generate substantial fee income that can exceed the impermanent loss. For example, a pool earning 50% APY in fees but experiencing 5% IL would still net 45% returns. However, in low-volume pools or during extreme price movements, fees may not be sufficient to cover IL. Always evaluate the expected fee income against potential impermanent loss before providing liquidity.
How can I minimize impermanent loss?
Several strategies can help minimize impermanent loss. First, provide liquidity to stablecoin pairs (like USDC/USDT) where price deviations are minimal. Second, use concentrated liquidity positions on Uniswap V3 with tight price ranges that earn more fees. Third, choose correlated pairs like stETH/ETH where both assets move similarly. Fourth, use protocols with IL protection like Bancor which reimburse IL over time. Fifth, select high-volume pools where fee income compensates for IL. Sixth, consider single-sided staking protocols that eliminate IL entirely. Finally, actively manage your positions — adding liquidity when prices are stable and removing when significant price movements occur.
Is impermanent loss always negative?
Yes, impermanent loss is always a cost compared to simply holding the assets. The formula always yields a negative result (or zero if prices remain unchanged), meaning you always have fewer assets in dollar terms as a liquidity provider compared to holding. However, the total return from liquidity provision includes both IL and earned fees. When trading fees exceed the impermanent loss, your total return is positive and can exceed simple holding. This is why it is essential to consider IL as one component of the total return equation, not the only factor. Many profitable liquidity providers accept IL as a cost of doing business, similar to how insurance companies accept claims as a cost of collecting premiums.
Why might my result differ from another tool or reference?
Differences typically arise from rounding conventions, the specific version of a formula (for example, simple vs compound interest), or unit inconsistencies between inputs. Check that both tools are using the same formula variant and the same units. The References section links to the authoritative source behind the formula used here.
References
Reviewed by Daniel Agrici, Founder & Lead Developer · Editorial policy