Frequently Asked Questions
What is impermanent loss?
Impermanent loss is the difference in value between holding tokens in your wallet versus providing them as liquidity in a DeFi pool. When token prices change, the AMM rebalances your position, leaving you with less value than simply holding.
How is impermanent loss calculated?
The formula is IL = 2 × √r / (1 + r) − 1, where r is the price ratio (new price / entry price). A 2x price change gives ~5.72% IL. For V3 concentrated liquidity, IL is amplified by the concentration factor based on your price range.
Is impermanent loss worse on Uniswap V3?
Yes. Concentrated liquidity amplifies both fees earned AND impermanent loss. A tight ±10% range can amplify IL by 5-10x compared to full-range V2. But the higher fee share can offset this if price stays within range.
Can trading fees offset impermanent loss?
Yes. High-volume pools can more than compensate for IL. The key: Net APY = Fee APY − IL%. If positive, the LP position is profitable. This calculator includes a fee offset section to help you determine breakeven.
What pools have the lowest impermanent loss?
Stablecoin pairs (USDC/DAI) have near-zero IL. Correlated pairs like ETH/stETH or BTC/WBTC also minimize IL. Highest IL occurs in volatile/stable pairs like ETH/USDC during large swings.