Liquidity Pool Calculator
Calculate your share of a liquidity pool and expected fees from TVL and volume. Enter values for instant results with step-by-step formulas.
Formula
Pool Share = Deposit / TVL | IL = 2√r/(1+r) - 1
Your pool share determines your proportion of trading fees. Impermanent loss is computed from the price ratio change using the constant product AMM formula. APR annualizes daily fee income as a percentage of your deposit.
Worked Examples
Example 1: ETH/USDC Pool on Uniswap
Problem: You deposit $10,000 into an ETH/USDC pool with $50M TVL and $5M daily volume at 0.3% fee. ETH price changes +20%.
Solution: Pool share: $10,000 / $50,010,000 = 0.02%\nDaily fees from pool: $5,000,000 × 0.3% = $15,000\nYour daily fees: $15,000 × 0.02% = $3.00\nMonthly fees: $3.00 × 30 = $90.00\nAPR: ($3.00 / $10,000) × 365 = 10.95%\n\nImpermanent loss at +20%: 2×sqrt(1.2)/(1+1.2) - 1 = -0.46%\nIL in dollars: $10,000 × 0.46% = $46.00
Result: Monthly fees: $90 | IL: $46 | Net monthly profit: $44 | APR: 10.95%
Example 2: Stablecoin Pool (Low Risk)
Problem: You deposit $50,000 into a USDC/USDT pool with $200M TVL, $20M daily volume, and 0.05% fee. Price deviation: 0.5%.
Solution: Pool share: $50,000 / $200,050,000 = 0.025%\nDaily fees: $20,000,000 × 0.05% = $10,000\nYour daily fees: $10,000 × 0.025% = $2.50\nMonthly fees: $2.50 × 30 = $75.00\nAPR: ($2.50 / $50,000) × 365 = 1.83%\n\nIL at 0.5% deviation: 2×sqrt(1.005)/(1+1.005) - 1 ≈ -0.0006%\nIL in dollars: $0.31 — negligible for stablecoins
Result: Monthly fees: $75 | IL: ~$0 | Net: ~$75 | Low risk, steady income
Frequently Asked Questions
What is the difference between APR and APY for liquidity pools?
APR (Annual Percentage Rate) is the simple annualized return without compounding, calculated as daily fees divided by deposit times 365. APY (Annual Percentage Yield) accounts for the effect of reinvesting (compounding) your earnings back into the pool. The formula is APY = (1 + daily_rate)^365 - 1. For example, if your daily return is 0.1%, the APR is 36.5% but the APY is 44.0% because each day you earn fees on previously earned fees. In practice, compounding in DeFi is not automatic and requires manual or automated reinvestment through auto-compounding protocols like Beefy or Yearn. Gas fees for reinvestment transactions can eat into the compounding benefit, especially on Ethereum mainnet.
How do I choose which liquidity pool to provide liquidity to?
Choosing a liquidity pool requires balancing several factors. First, consider the fee APR relative to impermanent loss risk. Pools with correlated token pairs (like USDC/USDT stablecoin pairs) have minimal IL but lower fees. Volatile pairs (like ETH/small-cap tokens) offer higher fee income but greater IL risk. Second, examine the TVL (Total Value Locked): very high TVL means your share is small, reducing fee income, while very low TVL may indicate low demand. Third, check trading volume consistency; sporadic volume means unreliable fee income. Fourth, evaluate the protocol's security: audited contracts, established platforms, and insurance options. Finally, consider incentive programs where protocols offer additional token rewards to LPs.
What is TVL and why does it matter for liquidity providers?
TVL (Total Value Locked) is the total dollar value of all assets deposited in a liquidity pool or DeFi protocol. For liquidity providers, TVL directly affects your share of the pool and therefore your fee income. If a pool has $10M TVL and you deposit $10K, your share is 0.1%, meaning you earn 0.1% of all trading fees. As TVL increases (more LPs join), your share decreases even if volume stays the same. Conversely, if TVL drops, your share increases. The ideal scenario is a pool with moderate TVL but high trading volume, giving each LP a meaningful share of substantial fees. TVL can also be used as a proxy for protocol trust: higher TVL generally indicates greater community confidence in the platform's security and reliability.
What is impermanent loss in liquidity pools?
Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes from when you deposited. The larger the price divergence, the greater the loss compared to simply holding. Trading fees may offset this loss.
What is a liquidity pool and how does it work?
A liquidity pool is a smart contract holding pairs of tokens that enables decentralized trading. Liquidity providers deposit equal values of two tokens and earn a share of trading fees proportional to their contribution.
How do I get the most accurate result?
Enter values as precisely as possible using the correct units for each field. Check that you have selected the right unit (e.g. kilograms vs pounds, meters vs feet) before calculating. Rounding inputs early can reduce output precision.