DeFi Impermanent Loss Calculator - Estimate Liquidity Pool Risks

Impermanent loss occurs when the price ratio of two tokens in a liquidity pool changes compared to when you deposited them. It's "impermanent" because the loss only becomes permanent if you withdraw when prices are different. The loss represents the difference between holding tokens vs providing liquidity.

The calculator uses the standard impermanent loss formula: IL = 2√(price_ratio) / (1 + price_ratio) - 1. It accounts for pool fees earned, which can offset losses. Results show both percentage loss and dollar value based on your initial investment.

Impermanent loss becomes permanent only when you withdraw your liquidity from the pool. If prices return to their original ratio, the loss disappears. This is why long-term liquidity providers often wait for favorable conditions before exiting positions.

Choose pools with correlated assets (like stablecoin pairs), provide liquidity during low volatility periods, use concentrated liquidity (Uniswap V3), or select pools with higher fee tiers that generate more trading fees to offset potential losses.

Yes, trading fees can significantly offset impermanent loss. High-volume pools generate substantial fees. The calculator includes fee earnings in its analysis to show net position value after accounting for both impermanent loss and fee income.