A threefold relative price move causes about 13.4% impermanent loss in a standard, full-range 50/50 pool, before fees. This estimate compares your pool position with simply holding the same starting tokens.
- Use the pair’s relative price change, not one token’s dollar change alone.
- A concentrated range can behave differently from the standard estimate.
- Compare estimated loss with likely fees before adding liquidity.
What Does Impermanent Loss Measure?
Impermanent loss is the value gap between your pool position and holding your original tokens. It appears as prices change because the pool trades one token for the other to keep liquidity available.
For a volatile token paired with USDC, a stablecoin designed to track one US dollar, a sharp rise in the token’s price leaves you with fewer tokens than holding would. The loss is relative to holding; your position could still be worth more dollars than before.
How Can I Estimate It?
For a standard pool that keeps a 50/50 value split, use this formula: loss = 1 − (2 × √r ÷ (1 + r)). Here, r is the new token A price in token B divided by its starting price in token B.
For example, imagine depositing $500 of a volatile token and $500 of USDC. If the token triples against USDC, then r is 3, and the estimated loss is 13.4% versus holding. That is about $268 of the $2,000 hold value, before fees.
If the token falls to one-third of its starting price, the standard estimate is also about 13.4%. For two volatile tokens, calculate the change in their price ratio: if both rise equally against the dollar, that ratio stays roughly constant.
What Changes In A Concentrated Pool?
A concentrated liquidity market maker (CLMM) lets you set a price range where your tokens are used for trades. The standard formula assumes full-range liquidity, so it is only a rough guide for a CLMM position.
When the market price moves outside your range, your position can end up entirely in one token and stop earning swap fees until the price returns. This range effect makes the result depend on your chosen boundaries and the price path, not just the start and end prices. Byreal and Meteora both offer Solana liquidity options, but pool details and position tools can differ. For the platform workflow, read how to provide liquidity on Byreal; this article’s focus is estimating the risk.
- Write down the starting price of token A in token B.
- Choose a plausible future price ratio for your time horizon.
- Use the formula for a standard pool, or a position calculator for a CLMM range.
- Compare the estimated loss with expected fees, then decide whether the range and pair suit you.
Fees may offset some loss, but they are uncertain; a narrow range can earn more while active and stop earning sooner. Before depositing on Byreal, check the pool’s price range and estimate your result at both range edges.