DeFi Liquidity Pool and Impermanent Loss Guides
On this page
Liquidity-provider results need three separate layers: fee-free pool math, earned income, and risks or costs outside the invariant. This library routes each question to one page while the calculator owns the scenario arithmetic.
Start with the benchmark
Impermanent loss compares an LP with holding the original token quantities. It is not total portfolio return. Begin with the formula guide, then add an explicit fee and cost scenario to test break-even.
Choose the right guide
| Question | Guide |
|---|---|
| How is IL derived? | Formula |
| How much fee yield is needed? | Break-even |
| Is IL the same as losing money? | IL vs HODL |
| How do volume and TVL affect fees? | Fee APR |
| Does this apply to V3? | V2 vs V3 |
Use a defensible LP workflow
- Record the initial token quantities and quote-currency values.
- Choose the correct invariant and range model.
- Value HODL and the fee-free LP at the same exit prices.
- Add actual or explicit scenario income.
- Subtract gas, swaps, bridge, claim, exit, and rebalancing costs.
- Review contract, depeg, oracle, reward, tax, and custody risks outside the math.
Do not stretch one formula across every AMM
The tool supports full-range two-token constant-mean pools. Concentrated liquidity, StableSwap, multi-token pools, single-sided vaults, and active rebalancing require separate formulas and inputs. A premium page names that boundary before displaying a number.
Use this information
Apply the method in the Impermanent Loss & LP Break-Even Calculator. Keep the entered assumptions with the result so another reader can reproduce it.
Return to the cluster guide for the next decision.
Frequently asked questions
Can this guide replace a written contract or professional review?
No. It explains a reproducible planning method and the questions to verify; the applicable contract, official source, or qualified adviser controls.
Why are the assumptions shown instead of hidden defaults?
Financial results can change materially with tax, price, risk, cost, time, and responsibility assumptions. Visible inputs make the answer auditable.
How often should I revisit the result?
Recalculate whenever a quoted rate, fee, price, contract term, source rule, or risk allocation changes.
Sources
- Uniswap developers - How Uniswap works
- Uniswap v2 core whitepaper
- Uniswap Labs - What is impermanent loss?
- Balancer - Weighted Math
Sources and methodology reviewed 2026-09-25. Results are planning estimates, not a lender quote, tax opinion, investment recommendation, legal opinion, or provider proposal.
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