On impermanent loss in LPs - how do you actually account for it?

asked by u/nguyen_do · 6d · 3 answers

Hey everyone, been diving deeper into DeFi over the past few months, mostly sticking to more stable stuff but thinking about exploring some liquidity provision in slightly more volatile pairs. My question is around impermanent loss. I get the concept theoretically – divergence in price leading to less value than if I'd just held the assets separately. But practically, for those of you actively providing liquidity, how do you actually factor this into your profit/loss calculations? Do you just mentally track it, or do you have a specific method for calculating it against your swap fees and farming rewards to get a true picture of your returns?

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Top answers

  • u/sneha_khan· 1 pts· 6d

    That's a great question, and it's definitely one of the trickier parts of LPing in volatile pairs. For me, it's less about a precise accounting and more about understanding the potential divergence and how much risk I'm willing to take on that particular pair. Have you looked into tools that project IL based on price movements?

  • u/eva_m· 1 pts· 6d

    Most people don't actively account for IL beyond tracking their total portfolio value against a baseline. It's usually factored into the risk/reward calculation before entering a pool, assuming the fees outweigh the potential divergence.

  • u/farid10· 1 pts· 6d

    It's a tricky one to account for precisely, as it's unrealized until you withdraw. Most just track the current value of their LP tokens versus the value of the initial assets at the time of deposit, but that doesn't factor in any fees earned along the way.

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