Impermanent Loss Explained and Calculated: When LP Positions Underperform

Impermanent loss is the hidden cost of liquidity providing. This guide explains exactly how to calculate IL for any price movement, when it matters most, and how to mitigate it.

Impermanent loss (IL) is the opportunity cost of providing liquidity vs. simply holding the tokens. The term "impermanent" is misleading — IL only disappears if prices return to entry levels. If you withdraw with different prices, the loss is realized. Understanding IL is essential before providing liquidity in any volatile pool.

IL Calculation Examples

When IL Does Not Matter

IL Mitigation Strategies