How to Use Impermanent Loss Calculators

Detailed Instructions

Begin by identifying the specific Automated Market Maker (AMM) pool where you provided liquidity, such as Uniswap V3, PancakeSwap V2, or Balancer. You will need the pool address (e.g., 0x88e6A0c2dDD26FEEb64F039a2c41296FcB3f5640 for the USDC/WETH 0.05% fee tier on Uniswap V3) and the exact timeframe of your liquidity provision. Use a blockchain explorer like Etherscan to find this data. For the calculation, you must record the initial price ratio of the two assets at the time you entered the pool and their current price ratio. This is crucial because impermanent loss measures the difference between holding the assets versus providing liquidity.

• Sub-step 1: Navigate to the AMM's interface (app.uniswap.org) or a DeFi portfolio tracker to locate your position.
• Sub-step 2: Copy the contract address of the liquidity pool and your wallet address.
• Sub-step 3: Use a price oracle like CoinGecko's API to find the historical and current prices for both assets in the pair.

Tip: For precise results, note the exact block numbers when you deposited and when you are calculating. Slight price variations can significantly impact the loss percentage.

Detailed Instructions

Not all calculators handle concentrated liquidity (like Uniswap V3) or custom fee structures. Select a tool that matches your pool's AMM version. Reputable options include the DailyDefi IL Calculator, Binance Academy's tool, or dedicated calculators on sites like ApeBoard. Once selected, you will configure the inputs. The core parameters are the initial asset prices, the current asset prices, and the percentage of each asset in your initial deposit. For a 50/50 pool, this is straightforward, but for weighted pools, you must input the exact weights (e.g., 80/20).

• Sub-step 1: Go to your chosen calculator's website (e.g., https://dailydefi.org/tools/impermanent-loss-calculator/).
• Sub-step 2: Input the token pair symbols (e.g., ETH and USDC).
• Sub-step 3: Enter the initial prices (e.g., ETH = $1,800, USDC = $1.00) and current prices (e.g., ETH = $2,500, USDC = $1.00).
• Sub-step 4: Specify your initial investment amounts or percentages.

Tip: Many calculators allow you to model different price change scenarios. Use this to understand potential future risks by adjusting the 'price change %' slider.

Detailed Instructions

After entering all data, click the 'Calculate' button. The tool will output several key metrics. The primary figure is the impermanent loss percentage, which represents the opportunity cost compared to simply holding the assets. For example, if ETH price doubles relative to USDC, a 50/50 pool might show an IL of -5.72%. The calculator should also show your current pool value and the hold value (the value if you had never provided liquidity). Crucially, you must factor in earned fees. The net result is: Net Position = Current Pool Value + Accumulated Fees - Hold Value. A positive net means fees outweighed the IL.

• Sub-step 1: Record the calculated impermanent loss percentage and the two value figures.
• Sub-step 2: If the calculator has a fee input, add the total fees you've earned from the pool (check your LP position dashboard).
• Sub-step 3: Perform the net position calculation manually if needed: (Pool Value + Fees) / Hold Value - 1.

Tip: Impermanent loss is 'impermanent' until you withdraw. The loss is realized upon withdrawal, locking in the difference between the two asset values at that moment.

Detailed Instructions

The final step is to translate the numbers into actionable insights. A high impermanent loss percentage indicates your pool is experiencing significant volatility divergence. If the net position is negative despite fees, it may be time to reconsider your strategy. Consider adjusting your price range for concentrated liquidity positions to better match market conditions. You can also use the calculator proactively to simulate 'what-if' scenarios before entering a pool. For instance, model a 50% price increase for one asset to see the potential IL. This helps in selecting pairs with higher fee yields or more stable correlations to mitigate risk.

• Sub-step 1: Compare your net position against your investment goals and risk tolerance.
• Sub-step 2: For Uniswap V3, use a range analysis tool to see if your liquidity is currently 'in range' and earning fees.
• Sub-step 3: Based on the analysis, decide whether to: Hold (if fees compensate), Adjust your position's price bounds, or Exit the pool.

Tip: Regularly recalculate (e.g., weekly) as prices change. Automate data gathering with scripts or portfolio dashboards to monitor your positions efficiently. For advanced users, interacting with pool contracts directly can provide precise fee data.

javascriptCopy
// Example pseudocode for fetching pool data via web3.js
const poolAddress = '0x...';
const poolContract = new web3.eth.Contract(POOL_ABI, poolAddress);
const slot0 = await poolContract.methods.slot0().call();
const currentSqrtPrice = slot0.sqrtPriceX96;
// Convert sqrtPriceX96 to a human-readable price

Detailed Instructions

Before using any calculator, you must accurately gather the initial and current price ratios of the two assets in your pool. This is the foundational data for all calculations. You'll also need to know your share of the liquidity pool, often represented as a percentage or the specific amount of LP tokens you hold.

• Sub-step 1: Identify the pool details: Note the exact pair (e.g., ETH/USDC) and the decentralized exchange (e.g., Uniswap V3, Balancer).
• Sub-step 2: Record initial entry prices: Find the price of each asset in a common denomination (like USD) at the time you provided liquidity. For example, if you entered when 1 ETH = $2,000 and 1 USDC = $1.
• Sub-step 3: Record current market prices: Get the latest prices from a reliable oracle or DEX interface at the time of calculation.
• Sub-step 4: Determine your stake: Check your wallet or the pool's interface to see your exact LP token balance or percentage share.

Tip: Bookmark a price tracking site like CoinGecko for historical price data, and always use the same price source for consistency to avoid calculation errors.

Detailed Instructions

Not all calculators are equal. Select one that matches your pool's constant product formula (like Uniswap V2) or concentrated liquidity model (like Uniswap V3). For advanced pools, you may need a protocol-specific tool.

• Sub-step 1: Choose your tool: For a standard AMM, use a general calculator like the one at https://dailydefi.org/tools/impermanent-loss-calculator/. For concentrated liquidity, use a V3-specific simulator.
• Sub-step 2: Input the core parameters: Enter the initial prices (e.g., ETH: $2000, USDC: $1) and current prices (e.g., ETH: $2500, USDC: $1).
• Sub-step 3: Specify pool fees and your contribution: Input the pool's swap fee percentage (e.g., 0.3%) and the total value you initially deposited (e.g., $10,000 split 50/50).

codeCopy
// Example conceptual inputs for a calculator:
Initial Price of Asset A: 2000
Initial Price of Asset B: 1
Current Price of Asset A: 2500
Current Price of Asset B: 1
Pool Fee Rate: 0.003
Initial Investment Value: 10000

Tip: Double-check that the calculator's formula accounts for earned fees, as this can significantly offset impermanent loss over time.

Detailed Instructions

The calculator will output your impermanent loss as a percentage and the current value of your LP position versus a simple holding (HODL) strategy. Impermanent loss is not a realized loss until you withdraw, but it represents an opportunity cost.

• Sub-step 1: Understand the outputs: A result of -5.72% IL means your LP position is worth 5.72% less than if you had just held the assets. Note the absolute dollar values for both scenarios.
• Sub-step 2: Simulate volatility: Change the 'current price' field to see how IL changes. For instance, see what happens if ETH goes to $3000 or drops to $1500. This reveals the asymmetric, non-linear nature of the loss.
• Sub-step 3: Factor in accrued fees: Compare the IL value to the estimated fees earned. A calculator that includes fees might show a net gain despite IL.
• Sub-step 4: Assess your risk tolerance: Determine if the projected fee income at different price levels justifies the calculated IL risk for your investment horizon.

Tip: The worst impermanent loss occurs when the price ratio diverges significantly from your entry point. Use scenario analysis to identify your personal 'pain point' for exiting the pool.

Detailed Instructions

Armed with concrete data, you can now deploy active portfolio management strategies. The goal is to align your liquidity provision with your market outlook and risk profile.

• Sub-step 1: Adjust liquidity ranges (for V3): If using Uniswap V3, the calculator may show your current range is suboptimal. Re-deploy liquidity to a tighter range around the current price or a predicted future price to earn more fees, using the NonfungiblePositionManager contract.
• Sub-step 2: Rebalance your pool allocation: If IL is high and you expect further divergence, consider withdrawing, rebalancing your asset ratio back to 50/50 at the new prices, and re-depositing. This realizes the loss but resets your position.
• Sub-step 3: Hedge with derivatives: Use the calculated dollar exposure to impermanent loss to open a hedging position on a platform like dYdX or GMX. For example, if your IL simulation shows high sensitivity to ETH price increases, you might buy ETH call options.
• Sub-step 4: Set automated alerts: Use the price thresholds from your scenario analysis to set up price alerts. When triggered, these alerts prompt you to re-evaluate your LP position using the calculator again.

Tip: The most effective mitigation is often providing liquidity in correlated asset pairs (e.g., stablecoin pairs or different wrappings of the same asset like stETH/ETH), where price divergence and thus impermanent loss is minimal.