Token A (e.g. ETH)
Initial Price ($)

Future Price ($)

Token B (e.g. USDC)

Initial Price ($)

Future Price ($)

How It Works: Calculates Impermanent Loss (IL) by comparing the value of holding tokens vs providing liquidity.

Key Inputs:

Token Prices (In/Out): Entry and exit prices for both tokens.

Formula: IL = (2 × √r) / (1 + r) - 1, where 'r' is the ratio of price changes.

Impermanent Loss
-0.62%

Held Value vs LP Value

If Held: $10,000

In Pool: $9,938

What this means: Because prices changed relative to each other, you have 0.62% less value than if you had just held your tokens in a wallet.

What is Impermanent Loss?

Providing liquidity to a Decentralized Exchange (DEX) like Uniswap sounds like easy passive income. But there is a hidden risk: Impermanent Loss (IL).

How It Happens

AMMs (Automated Market Makers) work by keeping the ratio of assets in a pool constant. If the price of one asset (e.g., ETH) skyrockets while the other (e.g., USDC) stays stable, arbitrageurs will drain the cheaper ETH from the pool until the price matches the outside market.

The Result

You end up with less of the appreciating asset (ETH) and more of the stable asset (USDC) than you started with. If you had simply held the ETH in your wallet, you would have made more money. The difference between "holding" and "pooling" is Impermanent Loss.

When is it "Permanent"?

Question

Token A (e.g. ETH)

Initial Price ($)

Future Price ($)

Token B (e.g. USDC)

Initial Price ($)

Future Price ($)

How It Works: Calculates Impermanent Loss (IL) by comparing the value of holding tokens vs providing liquidity.

Key Inputs:

Token Prices (In/Out): Entry and exit prices for both tokens.

Formula: IL = (2 × √r) / (1 + r) - 1, where 'r' is the ratio of price changes.

Impermanent Loss

-0.62%

Held Value vs LP Value

If Held: $10,000

In Pool: $9,938

What this means: Because prices changed relative to each other, you have 0.62% less value than if you had just held your tokens in a wallet.

What is Impermanent Loss?

Providing liquidity to a Decentralized Exchange (DEX) like Uniswap sounds like easy passive income. But there is a hidden risk: Impermanent Loss (IL).

How It Happens

AMMs (Automated Market Makers) work by keeping the ratio of assets in a pool constant. If the price of one asset (e.g., ETH) skyrockets while the other (e.g., USDC) stays stable, arbitrageurs will drain the cheaper ETH from the pool until the price matches the outside market.

The Result

You end up with less of the appreciating asset (ETH) and more of the stable asset (USDC) than you started with. If you had simply held the ETH in your wallet, you would have made more money. The difference between "holding" and "pooling" is Impermanent Loss.

When is it "Permanent"?

Accepted Answer

The loss is technically "impermanent" because if prices return to the exact same ratio as when you deposited, the loss disappears. However, if you withdraw your liquidity while the prices are different, the loss becomes permanent.