What is Impermanent Loss?
Impermanent loss is the percentage difference between holding tokens in a liquidity pool versus simply holding them in your wallet. It is expressed as a negative percentage that increases as the price ratio between the two tokens in the pool diverges from the original ratio at the time of deposit.
Impermanent Loss (IL) is the difference between what your tokens would be worth if you had simply held them (HODL) versus what they are worth within a liquidity pool. When you provide liquidity to a decentralized exchange, the pool constantly rebalances your tokens as prices change. It sells the token that goes up and buys more of the one that goes down. This automatic rebalancing means you always end up with less total value than with a simple buy-and-hold strategy.
The word "impermanent" is misleading. The loss only reverses if the price ratio between the two tokens returns exactly to where it was when you deposited. In practice, that rarely happens, which is why many DeFi researchers prefer to call it divergence loss. For a deeper explanation with step-by-step math, read our complete guide on what is impermanent loss.
Interactive Simulator: Drag and Explore
Move the slider to see how impermanent loss changes as the price of Token A varies. The chart on the right shows the full IL curve — notice that it grows exponentially when the price moves away from the initial point.
Basic Simulator (50/50 pool)
How long do fees take to offset the loss?
Fees generated by pools vary between 0.01% daily (USDC/USDT stable pair) and 0.5% daily (volatile pairs with high volume). Enter your pool's fee APR to calculate how many days you need to recover IL.
Break-even: fees vs IL
Simplified calculation: assumes constant APR and stable price after the initial movement. In practice, fees vary with volume.
Concentrated Liquidity Simulator (Uniswap V3)
In Uniswap V3, you choose a narrow price range where you concentrate your capital. If all volume passes through your range, you multiply fees 3-10 times. But if the price moves out of range, you stop receiving fees and end up with 100% of the capital converted to the token that lost value — amplified IL.
Concentrated Liquidity with Range
The amplification factor indicates how many times more efficient your capital is compared to a 50/50 pool with the full range. Narrow ranges = higher amplification + higher risk of exiting.
Impermanent Loss Reference Table
This table shows impermanent loss for common price changes. The loss is the same whether the price goes up or down according to the given ratio.
| Price Change | Price Ratio | Impermanent Loss |
|---|---|---|
| +25% | 1.25 | −0.62% |
| +50% | 1.50 | −2.02% |
| +100% (2×) | 2.00 | −5.72% |
| +200% (3×) | 3.00 | −13.40% |
| +300% (4×) | 4.00 | −20.00% |
| +400% (5×) | 5.00 | −25.46% |
| −25% | 0.75 | −0.62% |
| −50% | 0.50 | −5.72% |
| −75% | 0.25 | −20.00% |
| −90% | 0.10 | −42.53% |
How the Formula Works
Impermanent loss for a standard 50/50 constant product pool depends only on the price ratio: how much the price of one token has changed relative to the other. The formula is:
The formula returns a percentage representing how much less your LP position is worth compared to simply holding. For example, a result of −0.057 means an impermanent loss of 5.7%.
Here, price_ratio = current price / initial price. Key observations:
- IL depends only on the ratio, not whether the price went up or down. A 2× increase and a 50% decrease produce the same IL (5.72%).
- IL is always zero when the price ratio is 1 (the price has not changed).
- IL grows exponentially. Small movements cost almost nothing; large movements quickly become expensive.
- IL never exceeds 100% in standard 50/50 pools — but in concentrated liquidity (Uniswap V3) it is amplified by the concentration factor.
When Impermanent Loss Matters
IL is a real cost, but it's not the only factor. The key question for every liquidity provider is: do the fees I earn outweigh the impermanent loss?
In pools with high volume and narrow ranges (stablecoin pairs), fees far outweigh IL. In volatile low-cap pools with low volume, IL can easily wipe out months of fee income in a single price movement. If you are bullish on a token and expect it to rise significantly, providing liquidity means the pool will sell your position throughout the rise; simply holding would have been more profitable.
Track it on CleanSky. CleanSky shows your LP positions with a clear breakdown of fees earned versus impermanent loss, so you can see at a glance if providing liquidity is paying off. Try CleanSky to monitor your DeFi positions with full transparency.
Related Guides
What is Impermanent Loss?
In-depth analysis with step-by-step math, practical examples, and strategies to minimize it.
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