Crypto Liquidity Pool Impermanent Loss Calculator

Why the LP position underperforms simply holding both assets

A $10,000 deposit into a 50/50 constant-product liquidity pool, where one asset moves 80% relative to the other, ends up worth $13,416.41 as an LP position -- compared to $14,000.00 if you had simply held both assets separately without providing liquidity. That's an impermanent loss of -4.17%, or $583.59 less than the HODL alternative.

This happens because a constant-product AMM (x*y=k) automatically rebalances the pool as prices diverge -- selling some of the appreciating asset and buying more of the underperforming one to keep the pool balanced. That rebalancing is what creates the LP's value curve, and it structurally lags a simple buy-and-hold whenever one asset's price moves relative to the other.

The relationship is symmetric in direction but not in magnitude for extreme moves: a price ratio change of +80% here produces the same -4.17% impermanent loss that a -44.4% change would (since the AMM only cares about the ratio between assets, not which one moved), but larger divergences in either direction produce disproportionately larger impermanent loss.

What impermanent loss doesn't account for

Classic 50/50 constant-product IL. Fees earned are a separate input you can add mentally. Impermanent loss is only half the LP return story -- trading fees earned from providing liquidity (not modeled here) can offset or exceed this -4.17% loss, especially in a high-volume pool, which is the actual reason liquidity providers accept IL risk in the first place.

The loss is called 'impermanent' because it only becomes a real, realized loss if you withdraw liquidity at this specific price ratio -- if prices later converge back toward where they started, the loss shrinks or disappears without ever needing to be realized.

This models a classic 50/50 constant-product pool (like a standard Uniswap V2-style pool) -- concentrated liquidity and non-50/50 weighted pools have different impermanent loss curves that this simplified model doesn't capture.

Deciding whether LP is worth the risk

Compare this -4.17% impermanent loss against the actual staking or fee yield the pool is generating -- if pool fees plus incentives clear roughly 4-5% over the same period, this specific scenario would break even against simply holding.

For a comparable yield-generating alternative without the impermanent-loss mechanic, the Crypto Staking Yield (APY) Calculator models single-asset staking instead of a two-asset pool.

Frequently Asked Questions (FAQ)