Impermanent loss (IL) is the gap between what your LP position is worth and what simply holding the two tokens you deposited would be worth at today's prices.
It appears whenever price moves in either direction — up or down, the LP always ends up behind pure HODL.
For a classic 50/50 pool the loss is a known formula: a 2× price move costs −5.72% vs holding; a 4× move costs −20.00%.
Fees exist to pay for it. Whether they actually do is what Cover Value measures.
01 · Intuition
The pool always sells your winner
A liquidity pool holds its balance by constantly trading against the market: as one token's price rises, arbitrageurs buy it out of the pool, leaving you with more of the other token. The pool is selling the riser and accumulating the dipper on your behalf, tick by tick.
So after any price move, you hold less of the token that went up and more of the one that went down — compared with just leaving the two bags alone. That shortfall, priced in dollars, is impermanent loss.
Diagram A — same deposit, same price move. The pool rebalanced you out of the winner: the red gap is the impermanent loss.
02 · The math
One formula, one variable
For a classic constant-product pool with a 50/50 deposit, IL depends only on the price ratiok = Pnow / Pentry — not on which token moved, and not on the deposit size.
Deposit V₀, split 50/50. The pool keeps x·y constant.
Holding: V_HODL(k) = V₀ · (1 + k) / 2
In the pool: V_LP(k) = V₀ · √k
IL(k) = V_LP / V_HODL − 1
IL(k) = 2·√k / (1 + k) − 1
This is always ≤ 0 — it equals zero only at k = 1 — and it is symmetric: a move to k and a move to 1/k lose exactly the same percentage. A halving hurts precisely as much as a doubling.
Price ratio k
Example (entry $2,000)
IL vs HODL
Gap per $10,000 deposited
1.25× (or 0.8×)
$2,500
−0.62%
−$69.66
1.5× (or 0.67×)
$3,000
−2.02%
−$252.55
2× (or 0.5×)
$4,000
−5.72%
−$857.86
3× (or 0.33×)
$6,000
−13.40%
−$2,679.49
4× (or 0.25×)
$8,000
−20.00%
−$5,000.00
5× (or 0.2×)
$10,000
−25.46%
−$7,639.32
IL% is measured against the HODL value at the new price. The dollar gap is V₀ · ((1+k)/2 − √k) on a $10,000 deposit — note HODL itself grew too; you lost relative to it, not necessarily in absolute dollars.
Diagram B — IL(k) = 2·√k/(1+k) − 1, plotted point-by-point. Perfectly symmetric: the pool doesn't care which way price ran.
03 · Concentrated liquidity
Ranges are the same curve, amplified
QuantumPools positions are Uniswap-v3-style range positions: your capital only works between a chosen low and high price. Inside the range, the same dollars act like a much larger full-range position — that concentration multiplies your fee share, and it multiplies the IL slope by the same factor. Tighter range → more fees per dollar → steeper IL when price moves.
Cross the range boundary and the position converts entirely into one token: the IL stops growing (you're just holding), but fee income stops with it.
Diagram C — the three lives of a range position. Only the middle one earns; only the middle one bleeds.
Rule of thumb: concentration is leverage on both sides of the ledger. A range 4× tighter earns roughly 4× the fees while in range — and takes roughly 4× the IL for the same price move. There is no setting that gives you one without the other.
04 · The name is optimistic
"Impermanent" — until you act
The loss is unrealized while the position sits untouched: if price returns to your entry ratio, IL goes back to zero. That's the "impermanent" part, and it's the only honest hope in the name.
A rebalance locks it in. When a position is withdrawn or rebalanced into a new range, the tokens are swapped at the current ratio and the IL to that point becomes realized — permanent. Serial rebalancing in a steadily trending market means repeatedly selling the loser's discount and buying the winner's premium: each cycle crystallizes a fresh slice of loss. If fees aren't out-earning it, frequent rebalancing is how LPs bleed out slowly while every individual step looks small.
05 · How QuantumPools measures it
Against your true genesis deposit
QuantumPools marks IL in USD as current LP value vs simply holding the originally deposited tokens at today's prices — "vs HODL, at the current mark." The comparison basis is the position's genesis deposit: the actual original token amounts, reconstructed from the position's own on-chain history. Once locked, that basis is immutable — a hand edit wins over everything, and missing legs are never invented. If a mint was genuinely one-sided, its zero leg stays zero.
Two details keep the number honest:
Reinvested fees are stripped back out. Fees the keeper compounded sit inside the current balance; comparing that straight to HODL would net earnings against the loss — a position could report no IL while having given up much of its principal. QuantumPools removes compounded fees before the comparison, so auto-compounding can't mask the loss.
Missing ≠ zero. A position with no entry basis yet shows pending — it is excluded from the total rather than counted as zero IL. When some positions are still unresolved, the tile is labelled "Impermanent loss · N of M LPs" with a PARTIAL note, never "Total". We never invent entry balances.
The tick-based v3 closed form (the formula above) is used only as a fallback for positions without a reconstructed basis — it measures from the first time the current NFT was seen, so after a rebalance it can read ~0% while the real, lifetime IL is much larger. The genesis-basis number is the one to trust. Everything shown is unrealized (mark-to-market); realized IL locks in at each rebalance or withdraw, and realized Cover tracking is coming later.
06 · Fees vs IL
The whole game in one ratio
IL is not a verdict — it's the cost side of providing liquidity. Fees are the revenue side. The question that matters is whether fees have out-earned the IL, and that ratio is exactly what Cover Value scores: fees earned ÷ |IL vs HODL|.
Worked example
A position has earned $52.58 in fees and carries an IL loss of $62.40 vs HODL.
Cover = 52.58 ÷ 62.40 = 0.84× — fees cover 84% of the loss.
QuantumPools displays a sub-1× cover as the negated reciprocal: −(62.40 ÷ 52.58) = −1.19×, read as "fees fall 1.19× short of covering the IL." Anything ≥ 1× shows green as the plain ratio.
07 · Try it
IL calculator
Classic 50/50 full-range math (the formula above). A concentrated range amplifies both the fees and the IL — treat these numbers as the floor, not the ceiling. Educational only, not advice.
0.2×k = 2.00×5×
Impermanent loss
−5.72%
vs HODL at current mark
Value if you'd held
$1,500.00
HODL, both tokens
Value as LP
$1,414.21
before fees
IL in dollars
−$85.79
the gap fees must pay for
Fees needed for 1× cover
$85.79
break-even vs HODL
Cover value (as QP shows it)
−1.72×
$50.00 fees ÷ $85.79 IL
08 · Takeaways
What to actually do with this
Correlated pairs suffer less. IL grows with the ratio between the two prices — tokens that move together keep k near 1.
Stable–stable pairs have almost none (k barely leaves 1), which is why their fee tiers are tiny.
Wide range = less IL and less fees; tight range = more of both. Pick the trade-off deliberately, not by default.
Trending markets punish LPs. A price that keeps going one way deepens IL continuously, and each rebalance along the way locks a slice in.
Check Cover Value before and after every rebalance. Rebalancing realizes the IL to date — know whether fees have paid for it first.