Impermanent Loss Calculator

When to use this skill

Use when the user asks about:

• Calculating impermanent loss for a liquidity position
• Understanding how IL works mechanically
• Comparing LP returns vs holding
• Estimating IL for various price scenarios
• Deciding whether to provide liquidity based on IL risk

Explanation Framework

1. Gather Position Details

Collect from the user:

• Token pair: The two assets in the pool (e.g., ETH/USDC)
• Entry prices: Price of each token when liquidity was provided
• Current prices: Price of each token now (or target scenario prices)
• Pool type: Constant product (50/50), concentrated liquidity, or weighted
• Position value: Total USD value deposited

2. Impermanent Loss Formula

For a standard constant product AMM (50/50 pool):

IL = 2 * sqrt(r) / (1 + r) - 1

Where r = (new price / entry price) of one token relative to the other.

Present IL as both:

• A percentage loss relative to holding
• An absolute dollar amount based on position size

3. Scenario Table

Generate a table showing IL at various price divergence levels:

Price Change	Price Ratio (r)	IL %	IL on $10K Position
0%	1.00	0.00%	$0
+/- 10%	1.10 or 0.91	-0.11%	-$11
+/- 25%	1.25 or 0.80	-0.60%	-$60
+/- 50%	1.50 or 0.67	-2.02%	-$202
+/- 75%	1.75 or 0.57	-3.77%	-$377
+/- 100%	2.00 or 0.50	-5.72%	-$572
+/- 200%	3.00 or 0.33	-13.40%	-$1,340
+/- 400%	5.00 or 0.20	-25.46%	-$2,546

Customize the table with the user's actual position size.

4. Break-Even Analysis

Calculate how much fee income is needed to offset IL:

• Required daily fee income = IL amount / days in position
• Compare against actual or estimated pool fee APR
• Determine the break-even time horizon
• State clearly whether the current fee rate covers the IL

5. Concentrated Liquidity Adjustments

For concentrated liquidity positions (Uniswap V3, etc.):

• IL is amplified inversely proportional to the range width
• A position concentrated in a ±10% range has roughly 10x the IL of a full-range position at the same price move
• If price exits the range, the position becomes 100% one token (maximum IL for that range)
• Factor in capital efficiency gains — narrower ranges earn proportionally more fees

6. Holding vs LP Comparison

Present a side-by-side comparison:

Strategy	Value if held	Value as LP	Difference
At entry	$X	$X	$0
At current prices	$Y	$Z	IL amount

7. Output Format

Summarize with:

• Impermanent loss: X% ($Y)
• Fees earned estimate: $Z
• Net P&L vs holding: Positive or negative
• Recommendation: Whether fees are likely to outpace IL
• Risk note: Remind user that IL becomes permanent loss upon withdrawal if prices have diverged