• The Complete Guide to Impermanent Loss in DeFi
  • What is Impermanent Loss?
  • The Math
  • When IL Matters
  • How to Protect Yourself
  • Free Tool

§The Complete Guide to Impermanent Loss in DeFi

If you’re providing liquidity in DeFi, you need to understand impermanent loss (IL). It’s the hidden cost that eats into your yields.

§What is Impermanent Loss?

When you deposit two tokens into a liquidity pool (like Uniswap), the AMM rebalances your position as prices change. If the price ratio changes significantly, you end up with less value than if you’d simply held both tokens.

§The Math

For a standard constant-product AMM (x*y=k):

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

§When IL Matters

• Volatile pairs (ETH/SHIB): High IL risk
• Correlated pairs (ETH/stETH): Very low IL
• Stablecoin pairs (USDC/USDT): Negligible IL

§How to Protect Yourself

1. Choose correlated pairs — The closer the price correlation, the lower the IL
2. Check APY vs IL — Your yield must exceed IL to profit
3. Use concentrated liquidity carefully — Uniswap V3 amplifies both yield AND IL
4. Set price ranges — Tighter ranges = more fees but more IL risk
5. Monitor regularly — Use an IL calculator to track your position

§Free Tool

Calculate your impermanent loss: https://defi-il-calc.surge.sh

Track gas prices before transacting: https://eth-gas-tracker.surge.sh

All tools free, no signup, no tracking.

Published via Nostr. Zap if useful: ninja42tools@coinos.io