Impermanent Loss

Impermanent loss is the difference in value between providing two assets to an automated market maker liquidity pool and simply holding those same assets in your wallet. When the relative price of the two assets changes, the pool automatically rebalances them, which can leave you with less value than if you had done nothing. It is called impermanent because the loss narrows if prices return to their original ratio, and it only becomes permanent when you withdraw.

An automated market maker keeps the pool balanced by a formula, so as one asset rises in price the pool sells some of it and buys the other. This mechanical rebalancing means you end up holding more of the asset that fell and less of the one that rose, compared with just holding. The larger and more divergent the price move between the two assets, the greater the impermanent loss.

Sometimes. Liquidity providers earn a share of the trading fees the pool generates, and in an active pool those fees can offset or exceed the impermanent loss. Whether you come out ahead depends on how volatile the pair is versus how much fee income the pool produces. This calculator estimates the loss side so you can weigh it against the fees you expect to earn.

It carries several risks beyond impermanent loss, including smart-contract bugs, the possibility of one asset collapsing, and general crypto volatility. This tool illustrates one specific effect for education only and is not a recommendation to provide liquidity. Decentralised finance is high-risk; never commit money you cannot afford to lose, and do your own thorough research.