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DeFi Liquidity Pool Impermanent Loss Calculator

Simulate crypto liquidity pool returns and calculate Impermanent Loss (IL) using Constant Product logic. Features heat map visualization for volatility risk analysis.

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About

Liquidity providers in Automated Market Makers (AMMs) face a unique risk vector known as Impermanent Loss. This occurs when the mathematical formula governing the pool forces the provider to sell an appreciating asset or buy a depreciating one to maintain the constant product ratio x × y = k. This tool calculates the divergence between holding tokens in a wallet versus providing them to a pool. It visualizes the "safe zones" where fees earned might outpace the devaluation caused by arbitrageurs rebalancing the pool.

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Formulas

For a standard 50/50 Uniswap V2 style pool, the value of the liquidity position relative to holding varies with the price ratio k where k = PfuturePentry.

Impermanent Loss Function:

IL(k) = 2√k1 + k − 1

If k deviates from 1.00 significantly in either direction, IL becomes negative. This loss represents the opportunity cost of not holding the assets separately.

Reference Data

Price Change (Multiplier)Pooled Value %Impermanent Loss %Requirement to Break Even
0.25x (75% Drop)80.00%-20.00%Must earn 25% in fees
0.50x (50% Drop)94.28%-5.72%Must earn 6.1% in fees
0.80x (20% Drop)99.38%-0.62%Must earn 0.62% in fees
1.00x (No Change)100.00%0.00%Neutral
1.50x (50% Gain)97.98%-2.02%Must earn 2.06% in fees
2.00x (100% Gain)94.28%-5.72%Must earn 6.1% in fees
5.00x (400% Gain)74.54%-25.46%Must earn 34.2% in fees

Frequently Asked Questions

It is realized only when you withdraw liquidity. If the relative prices of the tokens return to the exact same ratio as when you entered, the loss disappears. However, in crypto markets, prices rarely revert exactly, making the loss effectively permanent.
That is the goal. If the Accumulated Fees > Impermanent Loss, the position is profitable. This calculator focuses strictly on the IL component, representing the "hurdle" your fees must overcome.
The AMM algorithm sells the outperforming asset as it rises to buy more of the underperforming asset. If Token A goes up 100%, you hold less of it than if you had simply kept it in a wallet, resulting in a lower total portfolio value compared to "HODLing".