Using This Calculator Effectively
This impermanent loss calculator provides a precise tool for understanding divergence risk in constant product pools. Making the most of it requires understanding proper input methods and interpretation of results to inform real liquidity provision decisions.
The calculator uses price ratios rather than absolute prices because impermanent loss depends only on relative changes between the two assets. This ratio-based approach makes results universal across all pool sizes and price levels.
Best Practices
Begin with your current or planned entry ratio, then test various exit scenarios representing your expected price ranges. Focus on realistic market movements based on historical volatility and your market outlook rather than extreme outliers.
Compare multiple scenarios to understand sensitivity. Small ratio changes produce minimal loss, while larger moves create nonlinear increases. This helps set appropriate expectations and position sizing.
Practical Tips
- Use current market ratio as entry when evaluating existing positions
- Test both upside and downside scenarios symmetrically
- Consider your time horizon when estimating possible ratio changes
- Remember results show divergence impact only, excluding fees
Decision Framework
Use calculated impermanent loss as your maximum potential divergence cost. Compare this against expected fee earnings from pool activity to estimate net return potential. Higher calculated loss requires stronger fee compensation to justify provision.
FAQ
What ratio should I use for entry?
The price ratio at the moment you deposit or are considering depositing liquidity.
How accurate are the results?
Exactly accurate for theoretical 50/50 constant product pools without fees.
Should I avoid high IL scenarios?
Only if expected fees don't compensate. Many profitable pools experience periods of significant calculated impermanent loss.
Effective use turns theoretical calculations into practical decision-making tools.