Impermanent loss is the amount by which a liquidity provider's deposit in a decentralized exchange pool trails what the same tokens would be worth if the provider had simply kept them. It arises because an automated market maker, a smart contract that quotes prices from its own balances, trades against every price move. Uniswap's documentation also calls it divergence loss. The crypto hub covers the wider market, and what is DeFi explains where liquidity pools fit.
How do you calculate impermanent loss?
For a 50/50 constant-product pool, divide the new price ratio of the two tokens by the starting ratio, then put that one number into a fixed formula.
Pools in the Uniswap version 2 style keep the product of their two token balances constant, apart from fees. When ether gets dearer on other markets, arbitrage traders buy it from the pool until the pool's price catches up, so the pool ends with less ether and more dollars. Each balance shifts by the square root of the price change, which is why a square root appears in the formula. The result depends only on the start and end prices, not the path between them, and it ignores fees.
| Price of one token against the other | Pool position as a share of holding | Impermanent loss |
|---|---|---|
| 1.25× or 0.8× | 99.4% | 0.6% |
| 1.5× or 0.67× | 98.0% | 2.0% |
| 2× or 0.5× | 94.3% | 5.7% |
| 3× or 0.33× | 86.6% | 13.4% |
| 4× or 0.25× | 80.0% | 20.0% |
| 5× or 0.2× | 74.5% | 25.5% |
Uniswap's documentation gives the same percentages for price rises and notes that a halving costs as much as a doubling. Small moves cost little, and the loss accelerates as the move grows.
What does impermanent loss look like on an ETH/USDC deposit?
A provider who split $10,000 between ether and USDC on November 2, 2026, then saw ether double, would end up $857.86 behind someone who held the same coins.
Worked example: $10,000 in a 50/50 ETH/USDC pool, before fees
- Deposit at $2,273.92, ether's price at 00:00 UTC on November 2, 2026, according to DefiLlama: 2.19885 ETH and 5,000 USDC
- Ether doubles to $4,547.84, and arbitrage leaves the position with 2.19885 ÷ √2 = 1.55482 ETH and 5,000 × √2 = 7,071.07 USDC
- Value in the pool: 1.55482 × $4,547.84 + $7,071.07 = $14,142.14
- Value if held: 2.19885 × $4,547.84 + $5,000 = $15,000.00
- Impermanent loss: $14,142.14 ÷ $15,000 − 1 = −5.72%, or $857.86
- If ether halves to $1,136.96 instead, the position holds 3.10964 ETH and 3,535.53 USDC worth $7,071.07, against $7,500.00 if held: the same −5.72%
If ether drifts back to $2,273.92, the gap closes, which is where the word impermanent comes from. Withdrawing at any other price turns it into a realized loss measured against holding. Ether's current price is on the Ethereum price page, and what is Ethereum explains the coin itself.
How do trading fees offset impermanent loss?
Every swap pays the pool a fee, and a provider beats holding only when its share of those fees outgrows the impermanent loss.
Uniswap version 2 pools charge traders 0.30%. Since Uniswap's governance switched on protocol fees in December 2025, version 2 pools on Ethereum pay 0.25% to liquidity providers and 0.05% to the protocol. Version 2 fees are added to the pool's balances, so they compound inside the position.
Worked example: How much trading would cover $857.86?
- Pool: Uniswap version 2 ETH/USDC on Ethereum, holding $19.43 million at 05:02 UTC on November 2, 2026, according to DefiLlama
- A $10,000 position owns $10,000 ÷ $19.43 million = 0.0515% of it
- Earning $857.86 at 0.25% of each trade needs $343,146 of volume on that share, so the whole pool must trade about $666.7 million
- At the $30.40 million the pool traded in the seven days to November 2: about 22 weeks
- At the $0.24 million it traded in the 24 hours before the reading: about 7.6 years
- Assumes the pool's size and the position's share stay the same, and leaves out gas costs
Fees accumulate fastest when prices swing back and forth and volume is high, while a steady trend in one direction builds the loss with little offsetting trade. Volume is also lumpy, as the gap between that week and that day shows. Depositing and withdrawing cost network fees too, covered in gas fees explained.
Who earns the fees matters as well. A Bank for International Settlements working paper studied Uniswap version 3 on Ethereum from its May 2021 launch to the end of 2023. Retail wallets made up 93% of liquidity providers but collected only 10% to 25% of trading fees, and on more than half of the days studied they lost money after adjusting for risk. Professional providers suffered more impermanent loss yet earned more, placing liquidity where trading was heaviest and managing it actively.
How does concentrated liquidity change impermanent loss?
It magnifies the loss: a narrow price range earns more fees per dollar while the price stays inside it, but falls further behind holding when the price moves.
Uniswap version 3, launched in May 2021, lets providers choose the range over which their deposit trades, instead of spreading it across every possible price. Uniswap's documentation says that once the price leaves a position's range, the position consists entirely of one token and stops earning fees until the price returns.
| Ether's price | Full-range position against holding | $1,600 to $3,200 range against holding | What the range position holds |
|---|---|---|---|
| $2,728.70, up 20% | −0.41% | −2.61% | 0.96605 ETH and 8,064.63 USDC |
| $4,547.84, doubled | −5.72% | −26.89% | 10,919.27 USDC and no ether |
| $1,136.96, halved | −5.72% | −27.16% | 4.82568 ETH and no USDC |
Both positions start with $10,000 at $2,273.92. The range position deposits 2.17021 ETH and 5,065.11 USDC, because the mix depends on where the price sits in the range, and inside that range it trades like a $62,853 full-range position, about 6.3 times the fee-earning liquidity. If ether doubles, it has sold all its ether by $3,200 and earns nothing above that price.
Where will you see impermanent loss?
You will meet it wherever you are asked to deposit two tokens into a pool, and on the sites that rank pools by yield.
- Pool pages and yield rankings. Fee yields shown for a pool usually leave impermanent loss out. DefiLlama's yields data labels each pool's exposure: on November 2, 2026, every Uniswap USDC/WETH pool on Ethereum was marked as carrying impermanent-loss risk, while Curve's DAI/USDC/USDT and ETH/stETH pools were not.
- Reward programs. Protocols often pay extra tokens to attract liquidity, and those rewards can fall in price along with the deposit.
- Stablecoin and staking pairs. Pairs that track each other lose little until one side slips, as described under stablecoin depeg and, for liquid staking tokens, in crypto staking.
- Total value locked. Pool deposits count toward a protocol's total value locked, so a busy pool can look healthy while its providers trail holding.
CEX vs DEX explains how traders use these pools and what a swap costs them.
How is impermanent loss different from related costs?
Impermanent loss is a provider's shortfall against holding the same tokens, which separates it from simple price losses, traders' costs and a research measure built on it.
| Term | Who bears it | What it compares |
|---|---|---|
| Impermanent loss | Liquidity providers | The pool position with holding the same tokens, at current prices, before fees |
| Price loss | Anyone who owns the tokens | Today's value with the dollars originally put in |
| Slippage | Traders | The price a trade fills at with the price quoted when it was sent |
| Loss-versus-rebalancing | Liquidity providers | The pool with a strategy that makes the same trades at market prices |
| Realized loss | Any investor | A loss made final by selling or withdrawing |
Loss-versus-rebalancing comes from researchers at Columbia University and the University of Chicago. They note that impermanent loss depends on the start date chosen and can show a loss in two periods that nets to zero across both. Their measure equals what arbitrage traders take from the pool, so it only grows, and it grows faster when prices are volatile.
What mistakes do people make with impermanent loss?
The most common is comparing the pool with the wrong benchmark, since the loss is measured against holding both tokens, not against the cash deposited.
- Using the wrong yardstick. In the ETH/USDC example the position grew from $10,000 to $14,142.14, ahead of the cash put in, yet trailed holding by $857.86. Keeping all $10,000 in ether, 4.39770 ETH, would have reached $20,000.
- Reading the fee yield alone. A pool's fee rate says nothing about the price move that may cost more than the fees bring in.
- Assuming falls are the only danger. A rally hurts a provider as much as a crash of the same size.
- Treating narrow ranges as free extra yield. They earn more fees only while the price stays inside, and resetting a range makes the loss so far final and costs gas each time.
- Forgetting the contract. A flaw in pool code can cost providers far more than impermanent loss, a risk set out in CEX vs DEX.