DeFi calculator for estimating impermanent loss when providing liquidity to automated market makers. Calculate IL percentage and value for liquidity pools.
Starting price of Token A (e.g., ETH at $3,000)
Starting price of Token B (e.g., USDC at $1.00)
Current price of Token A (e.g., ETH now at $4,500)
Current price of Token B (e.g., USDC still at $1.00)
Total USD value you put into the pool (e.g., $5,000)
When you provide liquidity to a trading pool, you earn fees. But if the prices of your tokens change relative to each other, you might end up with less value than if you had just held the tokens separately. This difference is called "impermanent loss."
It's called "impermanent" because if prices return to where they started, the loss disappears. But if you withdraw while prices are different, the loss becomes permanent. Trading fees can help offset this loss.
Trading pools automatically rebalance when prices change. If ETH goes up, the pool sells some ETH and buys more USDC to keep the pool balanced. This means you end up with less of the token that went up.
You put $1,000 of ETH and $1,000 of USDC in a pool. ETH doubles in price. If you held: $3,000 total. In the pool: $2,828 total. You lost $172 (5.7%) compared to holding. But you also earned trading fees!
Small price changes = small losses (1.5x change = 2% loss). Big price changes = big losses (3x change = 13% loss, 10x change = 43% loss). Even if both tokens go up, you still lose if one goes up more.
You earn a small fee (usually 0.3%) from every trade in your pool. Busy pools can earn 20-50% yearly in fees, which often covers your losses and then some. The key is picking busy pools.
Enter what the tokens cost when you put them in the pool. Example: ETH was $3,000, USDC was $1.
Enter what the tokens cost now. Example: ETH is now $4,500, USDC is still $1. This shows how much prices have changed.
Enter the total dollar amount you deposited. If you put in $2,500 worth of ETH and $2,500 of USDC, enter $5,000.
IL %: How much you lost vs holding. IL Value: Dollar amount lost.HODL Value: What you'd have if you just held the tokens. LP Value: Your current pool value.
This calculator only shows your losses, not your total profit. You've also earned trading fees! If your fees are bigger than your losses, you made money overall.
Started: ETH $3,000, USDC $1, put in $5,000. Now: ETH $4,500, USDC $1. Result: ~3.5% loss ($175), but if you earned $300 in fees, you made $125 profit!
Initial Ratio = Price_A / Price_B
Final Ratio = Price_A_final / Price_B_final
Example: $2000/$1 = 2000, $4000/$1 = 4000
Change Ratio = Final Ratio / Initial Ratio
Example: 4000 / 2000 = 2x change
IL = (2 × √k) / (1 + k) - 1
where k = price change ratio
Example: (2 × √2) / (1 + 2) ≈ 0.943
HODL = Initial × (Final_A + Final_B) / (Init_A + Init_B)
Example: $10k × ($4000 + $1) / ($2000 + $1) ≈ $15k
LP = Initial × IL_Multiplier × Price_Factor
This is your pool value before fees
IL% = (HODL - LP) / HODL × 100
Example: ($15k - $14.15k) / $15k ≈ 5.7%
The IL formula is derived from the constant product formula (x × y = k) used by Uniswap and similar AMMs. When one asset appreciates, the AMM automatically sells it to maintain balance, giving you less of the winner and more of the loser. The square root relationship means IL grows non-linearly with price divergence.
Pick tokens that move together: USDC/USDT, ETH/stETH, or wrapped versions of the same token. These pairs have tiny losses while still earning good fees.
Stablecoin pools (USDC/DAI/USDT) have almost no losses while earning 3-15% yearly. Perfect for beginners who want steady returns.
Put your liquidity in a narrow price range to earn 2-10x more fees. Helps offset losses faster but requires more work to manage.
Some platforms let you deposit just one token and protect you from losses. Easier for beginners but usually lower returns.
Choose pools with lots of daily trading ($500k+). Busy pools generate more fees (20-50% yearly) that can cover your losses. More trades = more fees for you.
Set alerts for big price moves (20-30%). If one token pumps hard, consider exiting to lock in gains. You can always go back in when prices settle down.
Many pools give extra rewards (like free tokens) on top of trading fees. These can add 50-200% yearly, easily covering your losses. Check what bonuses are available.
Longer timeframes work better. Daily price swings create losses, but over months, prices often go back to normal while fees add up. Don't use pools if you need money back in less than a month.
In low-volume pools or during extreme volatility, IL can easily exceed trading fees. A 50% price move can create 20%+ IL, which might take months to recover through fees in modest pools.
Entering and exiting Ethereum pools can cost $50-500 in gas during high network activity. For small positions (<$5k), gas fees can negate profits. Consider L2s (Arbitrum, Optimism) or other chains.
AMM smart contracts can have bugs or be exploited. Use audited protocols with proven track records: Uniswap, Curve, Balancer, PancakeSwap. Avoid new/unaudited DEXes regardless of high APR promises.
New token pairs offering 500%+ APR are often scams. The token may go to zero, causing 100% loss. Stick to established tokens (ETH, BTC, USDC) or thoroughly vet new projects.
While your funds are locked in a pool earning 20% APR, the individual tokens might pump 100%. You miss out on full gains due to IL and rebalancing. Weigh LP returns against potential appreciation.
Every liquidity provision, fee collection, and withdrawal may be a taxable event. IL affects cost basis. Tracking 100+ micro-transactions for taxes is painful. Use crypto tax software (Koinly, TokenTax).
MEV bots can front-run your large trades when entering/exiting pools, causing slippage losses. Use limit orders or split large positions across multiple transactions to minimize impact.
Liquidity can migrate to different fee tiers (0.05%, 0.3%, 1%) on V3, reducing your pool's volume and fees. Monitor where the most liquidity concentrates and adjust your position accordingly.
Pairs: USDC/USDT/DAI | IL Risk: <0.5% annual | APR: 5-15% |Best for: Risk-averse LPs. Near-zero IL with solid fee income.
Pair: ETH/stETH | IL Risk: <1% annual | APR: 3-8% |Best for: ETH holders wanting yield without IL. Tight correlation.
Pairs: USDC/DAI/USDT/MAI | IL Risk: <1% | APR: 5-12% |Best for: Multi-asset stablecoin exposure with boosted APR.
Pair: ETH/USDC 0.3% | IL Risk: Moderate | APR: 15-40% |Best for: High volume compensates for IL. Use concentrated liquidity.
Pair: WETH/WBTC | IL Risk: Low-Moderate | APR: 10-25% |Best for: Somewhat correlated. Additional SUSHI rewards.
Pair: BNB/BUSD | IL Risk: Moderate | APR: 20-50% |Best for: BSC users. Lower gas fees than Ethereum.
Providing liquidity creates complex tax implications. Depositing into a pool may be a taxable event (disposing of assets). Withdrawing liquidity is definitely taxable. Trading fees earned are taxable income. IL affects your cost basis. Consult a crypto tax professional for accurate reporting.
LP taxation varies significantly by jurisdiction and individual circumstances. The IRS and other tax authorities are still developing clear guidance on DeFi activities. A crypto-specialized CPA can help you properly calculate cost basis, report income, and optimize your tax strategy. The complexity of LP positions makes DIY tax filing risky - professional help is worth the cost to avoid audits and penalties.