The Complete Guide to Impermanent Loss
By Arshi Khan, Founder of Just4Marketing · Last reviewed October 2026
When you provide liquidity to a decentralized exchange pool, the pool automatically rebalances your two tokens as prices move. If one token's price changes relative to the other, you end up with less value than if you had simply held both. That gap is impermanent loss. This guide explains why it happens, how big it gets, and when trading fees make up for it.
Why liquidity pools create the loss
A constant-product pool keeps the product of its two token balances fixed. When one token rises in price, traders buy it from the pool until the price matches the market, so the pool holds less of the rising token and more of the other. You end up with more of the token that underperformed.
The calculator compares the pool value, deposit × √(a × b), with the value of simply holding, deposit × (a + b) ÷ 2, where a and b are each token's price multiple.
How big impermanent loss gets
| Price ratio change | Impermanent loss |
|---|---|
| 1.25× (or 0.8×) | −0.62% |
| 1.5× | −2.02% |
| 2× (or 0.5×) | −5.72% |
| 3× | −13.40% |
| 4× (or 0.25×) | −20.00% |
| 5× | −25.46% |
A $10,000 deposit in a token/stablecoin pool where the token doubles is worth $14,142 in the pool, compared with $15,000 if held — $858 less, before fees.
Reducing impermanent loss
Pair correlated assets
Pools of two stablecoins, or of assets that move together, see little ratio change.
Compare fee yield
A pool's annual fee yield needs to exceed the impermanent loss you expect for providing liquidity to pay off.
Know your pool type
Concentrated-liquidity and weighted pools behave differently from 50/50 pools; their losses can be larger when prices move out of range.
Frequently asked questions
How is impermanent loss calculated?
For a 50/50 constant-product pool (like Uniswap v2), if the price ratio between the two tokens changes by a factor r, impermanent loss = 2√r ÷ (1 + r) − 1. A 2× price change gives a 5.72% loss compared with holding.
Why is it called 'impermanent'?
If prices return to where they were when you deposited, the loss disappears. It only becomes permanent when you withdraw while prices are different.
Does impermanent loss happen if both tokens rise equally?
No. It depends only on the change in the ratio between the two prices. If both tokens rise by 50%, the ratio is unchanged and there is no impermanent loss.
Do trading fees cover it?
Sometimes. Liquidity providers earn a share of trading fees, which can exceed impermanent loss in busy pools or when prices stay in a range. This calculator shows the loss before fees, so compare it with the pool's fee yield.