Impermanent loss is the value a liquidity pool deposit gives up compared with keeping the same tokens in a wallet. The benchmark is the wallet, not the amount first deposited. So a pool position can rise in dollars and still show a loss. Guides from CryptoNinjas and NIF Academy both define it this way.
Key facts, per NIF Academy
- Pool position: $10,000 in ETH and USDC comes to around $14,142 after ETH doubles.
- Without the pool: The original tokens alone would have reached $15,000.
- The gap: $858, exactly the 5.7% the formula predicts for a 2x move.
- Direction: A halving (0.5x) brings the same 5.7% loss as a doubling.
- Bigger moves: A 5x move leaves a 25.5% gap, more than a quarter of the capital.
- Reversal: The loss reverses only if prices return exactly to the entry ratio.
Why the pool causes the loss
Avalanche Support explains the setting. An automated market maker (AMM) lets people trade tokens through liquidity pools instead of a traditional market of buyers and sellers. A constant mathematical formula sets the price between the two pooled tokens. Impermanent loss appears when the relative prices of that pair change over time. The driver is the gap between a token's price on the outside market and its price inside the pool.
NIF Academy spells out the constant-product rule. The two token balances, x and y, must always multiply to the same constant, k. When prices move, the pool sells the token that has gained and builds up the token that has lagged, so that x × y = k still holds. The provider ends up owning a larger share of the weaker asset and a smaller share of the stronger one.
How big the loss gets
NIF Academy gives the formula for a standard pool split 50/50 between two tokens: impermanent loss = 2 × √r / (1 + r) − 1. Here r is the new price divided by the old price. The result comes out negative, and its size is the loss. A 2x move gives a 5.7% loss compared with holding. A 0.5x move gives the same 5.7%, since only the size of the move counts, not its direction. A 5x move gives 25.5%. Nadcab describes the pattern. Small price moves bring very modest losses. Extreme swings can bring substantial divergence.
The same formula works in dollars. Holding value minus pool value gives the gap for any deposit and price ratio. At $10,000 and a doubling, the result is the $858 from the worked example.
Impermanent loss in dollars: pool versus holding
How much would your deposit trail simply holding after one token's price changes?
| Your deposit, split 50/50 at entry | New price ÷ old price of the moving token (r) | Gap versus holding |
|---|---|---|
| 10,000 USD | 2 x | 858 USD |
| 10,000 USD | 0.5 x | 429 USD |
| 10,000 USD | 5 x | 7,639 USD |
- The deposit is split equally in value between the two tokens at entry.
- Only one token's price changes. The other token holds its value.
- r is the new price of the moving token divided by its old price.
- Trading fees and reward tokens are left out.
The result applies to a standard 50/50 constant-product pool and leaves out trading fees.
When the loss becomes permanent
NIF Academy says the word impermanent fits only a narrow case. The loss reverses only if prices go back exactly to the ratio at which the provider entered. A withdrawal at any other ratio realizes the paper loss for good.
Do trading fees cover it?
Nadcab runs an illustrative scenario. A token moves 5x. Impermanent loss reaches 25.5%. Fees over the same period come to only 3%. The provider faces a net loss of over 22%.
NIF Academy cites what it calls a landmark study. In that study's sample, 49.5% of providers ended up losing money after fees were set against their impermanent loss. The pools that lose least to price swings usually bring in the smallest fees, it says.
Ways to limit the exposure
NIF Academy's advice for a token expected to run is to hold it rather than pool it. A pool keeps selling that token as its price climbs. In decentralized finance (DeFi), stablecoin pools are "the closest thing DeFi has to a low-risk yield," it says. Those pools still carry smart-contract risk and depeg risk. Neither risk has anything to do with impermanent loss.
Avalanche Support notes that some decentralized finance platforms offer providers extra tokens or extended earnings to make up for impermanent loss. Those schemes vary by platform. None is guaranteed.
What is confirmed and what is not
Nadcab and NIF Academy, two separate guides, both put the loss from a 5x move at 25.5%. CryptoNinjas describes the same gap between a pool and keeping the tokens in a wallet. Avalanche Support ties the loss to shifting relative prices. The worked figures are illustrative for a standard 50/50 pool. The 49.5% figure is one guide's citation of a study that has not been checked against the study itself.
Analysis: who the numbers favor
The figures point to one test before depositing. A pool fits someone who expects the two prices to stay close and wants steady fee income. It fits poorly for someone who expects one token to surge, since bigger moves bring much larger losses. In that case, not pooling leaves more value. An advertised fee rate means little until it is set against the loss a large price swing could cause. A separate explainer covers what a liquidity provider does in DeFi pools and how that differs from broker supply.
Sources: What Is Crypto Impermanent Loss and How to Calculate It in [currentyear]? (cryptoninjas.net), accessed Oct 14, 2026 · Impermanent Loss Explained: The Hidden Cost of Liquidity Pools (nifmacademy.com), accessed Oct 14, 2026 · What is an automated market maker (AMM)? | Avalanche Support (support.avax.network), accessed Oct 14, 2026 · What is Impermanent Loss? | Avalanche Support (support.avax.network), accessed Oct 14, 2026 · Impermanent Loss - Managing Impermanent Loss in DeFi Tips (nadcab.com), accessed Oct 14, 2026
ZIPMEX promotes trading on trade.zipmex.com. Promotions are labelled and kept separate from news coverage, which is selected and checked without regard to them. Perpetual futures are leveraged derivatives. Prices can move fast and you can lose all of your margin. Not available in every jurisdiction. Not investment advice.
