Published July 2, 2026 · by ILCalc
Strip away the jargon and being a liquidity provider comes down to a single subtraction: net result = fees earned − impermanent loss, both measured against simply holding your tokens. If that number is positive, the pool paid you. If it is negative, you would have been richer doing nothing. Everything else — APR banners, TVL charts, "capital efficiency" — is noise until you have plugged real numbers into that one equation. This article shows you how to run it, with the break-even formula, a worked example, and rules of thumb for when fees realistically win.
Impermanent loss (IL) is the gap between the value of your LP position and the value of the same tokens if you had never deposited them. It appears whenever the two assets' prices diverge, because the pool's automated rebalancing sells the winner and buys the loser on the way. The percentage is fixed by how far prices move — not by how much money you put in.
The anchor figure worth memorising: in a Uniswap V2 style 50/50 pool, a 2× price move produces about 5.7% IL. A 4× move costs roughly 20%; a 1.25× move costs only about 0.6%. To turn a percentage into money, multiply by what your stake would be worth if you had just held it:
IL$ = HODL notional × IL%So a $10,000 position through a 2× move loses about $570 versus holding. That dollar figure — not the percentage — is what your fees have to beat. If you want the derivation behind the 5.7% number, see how the 5.7% IL figure is derived.
Every swap that routes through your pool pays a fee, and you earn your share of it in proportion to how much of the pool's active liquidity you supply. Over a period, fee income is well approximated by:
fees ≈ notional × fee APR × (days / 365)The lever that matters is fee APR, and it is driven by three things: the pool's trading volume (more swaps, more fees), the fee tier (0.01%, 0.05%, 0.30% or 1.00% on Uniswap), and your share of the liquidity at the prices where trading actually happens. Note that fee APR is not a fixed yield — it is realised volume × fee rate ÷ liquidity, so it rises when volume spikes and falls when more LPs crowd in. A headline "40% APR" measured during a busy week can quietly become 8% during a quiet month.
Set fees equal to the dollar cost of IL and solve for the yield you need. Because both sides scale with notional, the notional cancels out — break-even depends only on the price move and your time horizon:
break-even fee APR = IL% ÷ (days / 365)In words: the shorter your horizon, the higher the APR you need to cover a given move, because you have less time to accrue fees. Hold through the same 2× move for a year and a modest APR covers it; hold for a week and you would need an implausible yield. This is exactly the calculation behind the tool's impermanent loss break-even calculator, and the underlying fees − IL$ formula is documented at the methodology section.
Suppose ETH doubles against USDC while you provide liquidity. That is about 5.7% IL. How much fee APR do you need just to break even, depending on how long you are in the pool?
| Holding period | days/365 | Break-even fee APR |
|---|---|---|
| 30 days | 0.082 | ≈ 69% |
| 90 days | 0.247 | ≈ 23% |
| 365 days | 1.000 | ≈ 5.7% |
The lesson is stark. If a 2× move happens over a single month, you need a ~69% APR to come out even — rare and rarely sustained. Spread the same move across a full year and a 5.7% APR does the job, which many liquid pools clear comfortably. Time is the LP's friend; sudden divergence is the enemy.
Multiple on-chain studies have found that roughly half of Uniswap V3 liquidity providers earn less than if they had simply held, once IL is netted against fees. The reason is that V3's concentrated liquidity multiplies both sides of the ledger: fees per dollar go up, but so does IL when price leaves your chosen range. A tight range can push effective IL to 3–4× the V2 figure, so the same 2× move that costs 5.7% in V2 can cost 17–23% in a narrow V3 band — and worse, once price exits the range you stop earning fees entirely while fully exposed to the loss.
What separates the winners? Consistently high volume relative to liquidity, a long enough horizon to let fees compound past the drawdown, and range width chosen to match realistic volatility rather than to chase a headline APR.
Rules of thumb only get you so far — your pool has its own volume, fee tier and volatility. Plug your notional, expected price move, fee APR and days into the calculator and it returns the net figure directly, so you can see whether fees cover the loss before you commit a cent.
Run the break-even calculator →
It is "impermanent" only because it reverses if prices return to your entry ratio. The moment you withdraw — or the two prices never converge again — the loss is realised and permanent. In practice, most LPs exit before prices come back, so treat it as a real cost.
In Uniswap V2 fees accrue into the pool and are effectively reinvested, so they compound. In V3 fees are held separately and must be manually collected and redeposited to compound. The break-even math above uses simple (non-compounded) fees, which is the conservative choice.
No. ILCalc models fees versus IL only; it does not account for gas, price impact, MEV or reward vesting. On expensive chains, subtract your deposit and withdrawal gas from the net result as a final sanity check.