Phase 8 · Digital Assets
Impermanent Loss & APY Calculator
That juicy LP yield can be an illusion. Model the impermanent loss from price divergence against the fees you'd earn, and see whether providing liquidity actually beats just holding.
Under the hood
The math, fully exposed
We compare the weighted pool's value to simply holding the two assets:
Price multiple pᵢ = 1 + price change
LP ÷ HODL = (p₁w₁ × p₂w₂) ÷ (w₁·p₁ + w₂·p₂)
Impermanent loss = (LP ÷ HODL) − 1 (≤ 0)
Fees earned = fee APY × time in pool
Net vs holding = fees − |impermanent loss|
- Divergence is the enemy: IL grows with how far the two prices move apart. Two assets that rise together produce almost none; one mooning against a stable one produces a lot.
- Fees are the defense: a high enough APY can more than cover the IL — the break-even tells you how long you must stay (or what APY you need) to come out ahead of HODLing.
- It\'s unrealized until you exit: if prices revert before you withdraw, the loss vanishes and the fees are pure profit. Timing your exit matters.
Your directives
What to do next, based on your numbers
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Answers
Frequently asked questions
What is impermanent loss?
Impermanent loss is the gap between holding two tokens in a liquidity pool versus just holding them in your wallet. Because an automated market maker (AMM) constantly rebalances the pool, it sells the rising asset and buys the falling one — so when prices diverge, the pool is worth less than simply HODLing. It's "impermanent" because it shrinks if prices return to where they started, and only becomes real when you withdraw.
How is impermanent loss calculated?
For a weighted constant-product pool, the LP value relative to holding is (p₁^w₁ × p₂^w₂) ÷ (w₁·p₁ + w₂·p₂), where pᵢ is each asset's price multiple and wᵢ its pool weight. Impermanent loss is that ratio minus one — always zero or negative. For a 50/50 pool, a 2× move in one asset is about 5.7% IL; a 4× move is roughly 20%.
Why is it called "impermanent"?
Because it isn't locked in until you exit the pool. If the diverging price reverts to its original ratio, the loss disappears entirely and you keep the trading fees you earned in the meantime. It only becomes a permanent loss the moment you withdraw while prices are still diverged.
How do I minimize impermanent loss?
Provide liquidity to correlated or stable pairs (e.g. two stablecoins, or ETH/stETH) where prices barely diverge, choose pools with high enough fee APY to outearn the expected divergence, and avoid pairing a volatile "moonshot" token with a stable one unless the fees are very high. The break-even this tool shows is the number to beat.