How it works
An impermanent loss calculator quantifies the gap between depositing two tokens into an automated market maker pool and simply keeping them in your wallet. Constant-product AMMs hold the value of the two sides equal by construction, so whenever one token's price moves relative to the other's, the pool mechanically sells the winner and accumulates the loser — arbitrageurs take the trend off your table. The result: your pooled position grows with the geometric middle of the two price moves, the square root of their product, while a held basket grows with the plain average. The shortfall between those two figures is impermanent loss. Enter the deposit, each token's price change, the pool's fee APR and your time frame; the calculator shows the loss in percent and dollars, the hold-versus-pool comparison, the fees earned and the net outcome once fees are counted — because fees, not charity, are why anyone provides liquidity. Three anchors help intuition: the loss is exactly zero whenever both tokens move together regardless of direction, it grows with the square of the divergence rather than linearly, and it only becomes permanent when you withdraw after a lasting split — until then it is unrealized, which is precisely what 'impermanent' means.
Formula
pool value = deposit x sqrt(a x b) | held value = deposit x (a + b) / 2 | IL = pool / held - 1
Tips
- Correlated pairs — like two flavors of the same pegged asset — generate almost no divergence loss.
- Loss scales with the square of the ratio move: a 2x divergence hurts about four times as much as a 1.41x one.
- Compare fee APR against the loss percentage over your exact holding period, not against zero.
- Emission incentives can exceed fees but usually fade as programs wind down — model the post-incentive case too.
- Withdrawal converts the paper loss into a permanent one, so timing exits after divergences matters as much as entries.
Frequently asked questions
- What is impermanent loss?
- The shortfall between withdrawing your share of an AMM liquidity pool and simply having kept the original tokens in your wallet. It arises because the pool constantly rebalances toward equal value, selling the appreciating token and accumulating the depreciating one as prices diverge.
- How do I calculate impermanent loss?
- Take each token's price relative to deposit day, compute the pool's value as the deposit times the square root of the product of the relatives, compare it with the deposit times the average of the relatives, and express the difference as a percentage of the held value. The calculator runs this instantly and adds fees.
- When does impermanent loss happen?
- Whenever the two pooled assets diverge in price — one rallies harder, falls less, or moves in opposite directions. If both tokens move by the same percentage, in any direction, the loss is exactly zero. Magnitude follows the ratio between them, not the market's overall trend.
- Do trading fees cover impermanent loss?
- Sometimes, entirely. Busy pools collect substantial fee APR that accrues to liquidity providers, and the honest test is fees plus incentives against the divergence loss over your holding period. Quiet pools on volatile pairs frequently lose the race — which is why volume-to-TVL is the metric LPs watch.
- Why is it called impermanent?
- Because the shortfall only crystallizes on withdrawal. If prices return to their deposit-day ratio, the loss vanishes without ever being realized. Withdraw after a lasting divergence, though, and it becomes permanently locked in — 'impermanent' describes the accounting state, not a promise of recovery.