Impermanent loss calculator: how IL works + scenarios you can sanity-check

Impermanent loss (IL) is the gap between holding tokens and providing liquidity (LPing) when prices move. It’s not a theoretical “math gotcha”; it’s a real cost that shows up when you try to exit an LP position after a price change.

This guide explains IL in plain English, shows real scenarios, and then walks through the tool so you can sanity-check downside before you LP for points.

Use the tool here: impermanent loss calculator.

Quick take

• IL shows up when the relative price between two assets moves.
• Fees can offset IL, but fees are not guaranteed and they can be volatile.
• IL is symmetric; up 2x and down 50% produce the same IL in a 50/50 pool.
• Concentrated liquidity changes the shape of outcomes; out-of-range positions can behave differently.
• If you can’t tolerate the downside, don’t LP to chase points.

Nothing here is financial advice. This is risk math.

What impermanent loss is (plain English)

In an AMM pool, the pool rebalances as price moves. That rebalance means:

• you end up with more of the asset that went down
• you end up with less of the asset that went up

When you compare your LP position to “holding the two tokens,” you can be worse off after a price move. That difference is impermanent loss.

It’s called “impermanent” because if the relative price returns to the starting point, the gap shrinks. In the real world, you often exit before that happens.

Why AMMs create IL (the 60-second mental model)

AMMs pay you fees for being the counterparty to traders. When price moves, traders buy the underpriced asset from the pool and sell the overpriced asset into the pool. That pushes the pool toward the new market price.

That adjustment is the core trade:

• You earn fees when people trade against your liquidity.
• You give up some upside because the pool keeps rebalancing as price moves.

IL isn’t a bug. It’s the mechanism working as designed.

The 50/50 IL formula (so you can sanity-check numbers)

For a simple 50/50 constant-product pool, a common IL approximation is:

IL(p) = (2 * sqrt(p) / (1 + p)) - 1

Where p is the price ratio change (for example, p = 2 means one asset doubled relative to the other).

You don’t need to memorize this. You do need to recognize the pattern: bigger relative moves mean bigger IL.

Common IL scenarios (50/50 pool)

These are approximate, but they’re useful for intuition.

The same IL applies for the inverse move (for example, 2x up and 50% down).

Stable pairs vs volatile pairs (why outcomes feel different)

Two broad cases show up in points programs:

• Stable/stable LPs: relative price moves are usually smaller, so IL can be smaller; you still have depeg and smart contract risk.
• Volatile pairs: relative moves are larger, so IL can be meaningful; fees might be higher, but they’re not guaranteed.

If you’re LPing for points, don’t let “stable” lull you. A stablecoin depeg can be a bigger event than a normal price move.

Fees can offset IL, but don’t assume they will

IL is only one part of the outcome. Your net result also includes:

• trading fees earned
• incentives (if any)
• gas and management costs
• slippage when you enter and exit

In low volume environments, fees can be small. In high volatility environments, IL can spike. If your points strategy assumes “fees will cover it,” stress-test that assumption.

Why IL matters for points farming

Some points programs score LP positions because LPing is sticky. It keeps liquidity in the protocol and it’s harder to unwind than a simple swap.

That’s fine, but you should treat “LP for points” as:

• market risk (price changes)
• liquidity risk (slippage)
• smart contract risk

If you haven’t written an exit plan, do that first: points farming exit plan.

Concentrated liquidity: ranges change your exposure

If you provide concentrated liquidity (a narrow price range), your outcomes can change:

• You can earn more fees when price stays in-range.
• If price moves out-of-range, your position can start behaving like a single-asset hold until price returns.

That changes both the risk and the operational workload (rebalancing, monitoring, and gas).

If your points plan depends on active management, write that down. “I’ll manage it later” is not a strategy.

How to use the impermanent loss calculator

Use the tool like a pre-flight check:

1. Enter the starting price ratio or start value (depending on the tool input).
2. Enter the price change you want to stress-test (up and down).
3. Review the IL output and sanity-check it against the table above.
4. If you’re considering a narrow range (concentrated liquidity), test multiple outcomes; out-of-range can change behavior.
5. Decide if you can tolerate the downside without panicking.

Use the calculator here: impermanent loss calculator.

A simple three-scenario stress test

If you don’t know what to test, start here:

• Small move: +25% relative move
• Medium move: +100% (2x) relative move
• Bad day: -50% relative move (same IL as +100%)

Then ask:

• Would I still hold this position if points are worth zero?
• If I needed to exit this week, would slippage make it worse?

If the answers are uncomfortable, reduce exposure or avoid LPing for points.

A safer decision rubric for LP positions

Before you LP for points, answer these:

• Can I tolerate a 2x move against me?
• Can I exit without huge slippage?
• Is the protocol upgradeable, and who controls upgrades?
• Do I understand the token pair risk (depegs, low float, high volatility)?

If the answers are fuzzy, keep exposure small.

FAQ

Is impermanent loss guaranteed?

No. If prices don’t move relative to each other, IL is near zero. IL appears when relative prices move.

Is IL worse in volatile markets?

Yes. Larger relative price moves usually mean larger IL.

Does concentrated liquidity have “more IL”?

It changes the payoff shape. Some outcomes can be better, some worse. Out-of-range positions can reduce fee income and change exposure.

Is IL the only risk in LPing?

No. You also take smart contract risk, depeg risk, liquidity risk, and operational risk (approvals and links).

Next step

• Use the tool: impermanent loss calculator
• Compare bridge routes before moving funds: bridge fee comparison
• Learn the baseline: crypto points farming guide

Sources and further reading

• Uniswap concepts (AMMs and liquidity): https://docs.uniswap.org/concepts/overview
• ERC-20 token standard: https://eips.ethereum.org/EIPS/eip-20