Impermanent Loss & LP Yield Calculator
| Asset Price Change | Standard 50/50 IL (Uniswap / Pancake v2) | Concentrated IL (Uni v3 / Pancake v3 ±20%) |
|---|---|---|
| -75% | -25.46% | -100% (Full Out of Range) |
| -50% | -5.72% | -100% (Full Out of Range) |
| -20% | -0.56% | -2.45% |
| 0% | 0.00% | 0.00% |
| +20% | -0.45% | -2.10% |
| +50% | -2.02% | -100% (Full Out of Range) |
| +100% | -5.72% | -100% (Full Out of Range) |
What is Impermanent Loss (IL)?
Impermanent Loss occurs when you deposit a pair of tokens into an Automated Market Maker (AMM) liquidity pool and the relative price ratio of the tokens diverges from when you deposited them. Because arbitrageurs continually rebalance the pool against external market rates, you end up holding more of the depreciating asset and less of the appreciating one compared to simply holding both assets in your wallet.
PancakeSwap Liquidity: v2 vs. v3 Pools
PancakeSwap is the leading decentralized exchange on BNB Chain and multi-chain networks (Ethereum, Arbitrum, Base, Aptos), offering two primary pool architectures:
- PancakeSwap v2 (Constant Product AMM): Follows the standard x * y = k 50/50 formula with a flat 0.25% swap fee (0.17% distributed to LPs, 0.03% to treasury, and 0.05% allocated to CAKE burns). Liquidity is distributed uniformly from zero to infinity.
- PancakeSwap v3 (Concentrated Liquidity): Allows LPs to allocate capital within targeted price ranges with multiple fee tiers (0.01%, 0.05%, 0.25%, and 1.00%). This achieves up to 4,000x capital efficiency, but impermanent loss accumulates much faster if the spot price moves toward or beyond your range boundary.
How CAKE Yield Farms and Trading Fees Offset IL
While impermanent loss is a mathematical certainty whenever prices change, providing liquidity can still be highly profitable if accumulated fee APY and liquidity mining rewards outweigh the loss:
- Trading Fees: High-volume trading pairs (e.g. BNB/USDT, ETH/USDC) generate consistent fee yield that compounds over time.
- PancakeSwap Farm Emissions: Staking LP tokens or v3 position NFTs in PancakeSwap Farms rewards providers with CAKE incentives, directly boosting net APY and mitigating divergence loss.
Why is it Called "Impermanent"?
The loss is considered "impermanent" because if the exchange rate between the two assets returns to the initial deposit ratio, the loss is completely erased. It only crystallizes into a permanent, realized loss the moment you remove your liquidity from the AMM pool.