Impermanent Loss Calculator

Formula

The formula to calculate the impermanent loss is:

\[ IL = \left( \frac{2 \cdot \sqrt{PRA \cdot PRB}}{PRA + PRB + 2} \right) - 1 \]

Where:

\(IL\) is the impermanent loss (expressed as a percentage)
\(PRA\) is the price ratio of Asset A (Current Price A / Initial Price A)
\(PRB\) is the price ratio of Asset B (Current Price B / Initial Price B)

What is Impermanent Loss?

Impermanent loss occurs when the price of assets in a liquidity pool changes after a liquidity provider has deposited them into the pool. The loss is ‘impermanent’ because it can be recovered if the prices return to their original state at the time of deposit. It is a risk associated with providing liquidity in automated market maker (AMM) platforms.

Example Calculation 1

Let's assume the following values:

Price Ratio of Asset A (PRA) = 1.2
Price Ratio of Asset B (PRB) = 0.8

Using the formula:

\[ IL = \left( \frac{2 \cdot \sqrt{1.2 \cdot 0.8}}{1.2 + 0.8 + 2} \right) - 1 \approx -0.5101 \]

The impermanent loss would be approximately -51.01%.

Example Calculation 2

Let's assume the following values:

Price Ratio of Asset A (PRA) = 1.5
Price Ratio of Asset B (PRB) = 0.5

Using the formula:

\[ IL = \left( \frac{2 \cdot \sqrt{1.5 \cdot 0.5}}{1.5 + 0.5 + 2} \right) - 1 \approx -0.567 \]

The impermanent loss would be approximately -56.7%.