Kansas City, MO
Before you provide liquidity, know what price movement costs you.
Standard 50/50 pool (Uniswap V2 style). Compares LPing against simply holding the same assets.
| Total deposited ($) Split 50/50 between the two assets |
|
| Asset A price change (%) e.g. ETH moves +50 |
|
| Asset B price change (%) 0 for a stablecoin pair |
| Value If You Just Held | — |
|---|---|
| Value In the Pool | — |
| Impermanent Loss | — |
| Fee Income Needed to Break Even | — |
| Price Change | Impermanent Loss |
|---|---|
| +10% | -0.11% |
| +25% | -0.62% |
| +50% | -2.02% |
| +100% (2x) | -5.72% |
| +200% (3x) | -13.40% |
| +400% (5x) | -25.46% |
| -50% | -5.72% |
When you provide liquidity to a 50/50 pool, the pool constantly rebalances you: as one asset rises, the pool sells it for the other. If prices diverge, you end up with less of the winner and more of the laggard than if you'd left the coins in your wallet. That gap versus holding is impermanent loss. It's "impermanent" only because it shrinks if prices return to where you started. If you withdraw while prices are diverged, it's just loss.
Trading fees and incentives are supposed to pay you for accepting this. Sometimes they do: high-volume stable pairs can out-earn their tiny IL. Sometimes they don't: volatile pairs can rack up IL faster than fees accumulate. The honest question before LPing is always the same: is projected fee income bigger than projected divergence? If you can't answer it, start small. More context: NFTs, DeFi & Emerging Narratives.
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