Impermanent Loss Calculator
Impermanent Loss Calculator
Token A
Token B
What is Impermanent Loss?
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The larger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
How is it calculated?
It compares the value of your tokens in the liquidity pool versus simply holding them in your wallet. The formula uses the price ratio change between the two tokens.
FAQ
What is Impermanent Loss?
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The larger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
Find a more detailed explanation about Impermanent Loss here.
How is it calculated?
It compares the value of your tokens in the liquidity pool versus simply holding in your wallet. The formula uses the price ratio change between the two tokens.
How do you prevent Impermanent Loss?
- Use Stablecoin Pairs: Providing liquidity for pairs like USDC/USDT virtually eliminates Impermanent Loss because the assets’ prices remain pegged to each other.
- Correlated Assets: Choose pairs that move in tandem, such as ETH/stETH or WBTC/BTC, to minimize price divergence.
- IL Protection: Some DeFi platforms offer built-in insurance or protection mechanisms to reimburse providers for losses.
What is the best strategy to deal with Impermanent Loss?
- High Trading Fees: Opt for pools with high trading volume and fees (like Uniswap v3) to ensure the earned fees outweigh the potential Impermanent Loss.
- Diversification: Spread your liquidity across multiple pools to balance risk.
- Market Monitoring: Avoid providing liquidity during periods of extreme market volatility when price swings are most likely to cause significant Impermanent Loss.
- Wait for Price Reversion: Since the loss is “impermanent,” it only becomes permanent if you withdraw. Waiting for the relative prices to return to their original ratio can eliminate the loss.
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