nirholas 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