providing liquidity to a DeFi pool (like ETH/USDC) can generate massive yields, but it comes with a hidden risk: Impermanent Loss (IL).
Impermanent Loss happens when the price of your deposited tokens changes compared to when you deposited them. The greater the divergence, the more you lose relative to simply holding (HODLing) the tokens in your wallet. Our Impermanent Loss Calculator simulates the Automated Market Maker (AMM) formula ($x \cdot y = k$) to show you exactly how much value you might lose in a volatile market.
Impermanent Loss
DeFi CalculatorHow to Use the Calculator
This tool helps you decide if the trading fees (APY) are worth the risk of price divergence. Here is how to simulate your position:
- Enter Total Investment: Input the total dollar amount you plan to deposit into the pool (e.g., $1,000). The calculator assumes a standard 50/50 split between the two assets.
- Configure Asset Prices:
- Entry Price: The price of Token A and Token B at the moment you deposit.
- Future Price: The price you expect the tokens to reach. You can simulate one token going up (e.g., ETH +50%) and the other staying stable (USDC).
- Analyze the Comparison:
- Value if Held: How much your portfolio would be worth if you just kept the tokens in your wallet.
- Value in Pool: The value of your liquidity position after the AMM rebalances your ratio.
- Impermanent Loss: The difference between the two. This is your “opportunity cost.”
Real-World Examples: The Cost of Volatility
Many beginners think that if the price goes up, they make maximum profit. In liquidity pools, that is not true.
Example 1: The “Moonshot” Scenario (High IL)
Scenario: You provide liquidity to an ETH / USDC pool. You deposit when ETH is $2,000. Suddenly, ETH shoots up to $4,000 (+100%).
- The Mechanism: As ETH rises, the pool automatically sells your ETH for USDC to maintain the 50/50 value ratio. You end up with less ETH and more USDC than you started with.
- The Result: While your total dollar value increased, it increased 5.7% less than if you had just held the ETH. That 5.7% is your Impermanent Loss. If your trading fees didn’t earn more than 5.7%, you lost money relative to holding.
Example 2: The “Stable” Pair (Low IL)
Scenario: You provide liquidity to a USDT / USDC pool (Stablecoin pair).
- The Math: Since both assets are pegged to $1.00, the price divergence is near zero.
- The Result: Your Impermanent Loss is effectively 0%. This is why stablecoin pools are popular—you capture the trading fees without the risk of divergence loss.
Frequently Asked Questions (FAQ)
Why is it called “Impermanent”?
The loss is considered “impermanent” because if the prices of the tokens return to the exact same ratio as when you deposited them, the loss disappears. The loss only becomes permanent when you withdraw your liquidity from the pool.
Does this calculator include trading fees?
No. This calculator isolates the Capital Loss caused by price movement. To be profitable, the trading fees (APY) you earn from the pool must be higher than the Impermanent Loss percentage shown here.
What happens if both tokens drop in price?
If both tokens drop by the exact same percentage (e.g., -50%), there is no Impermanent Loss (because the ratio remains the same). However, you still suffer the standard loss of value in dollar terms. IL only occurs when the ratio between the two assets changes.