Web3 Liquidity Pool Impermanent Loss vs HODL Yield Simulator

Compare net pool performance against un-deposited spot HODLing across varying price ratios and fee accrual durations.

⚠️ Educational estimate, not financial advice. Liquidity provisioning exposes capital to price divergence risks; collected trading fees may or may not offset impermanent loss.

Initial LP Deposit ($)

Asset A Price Change (%)

Asset B Price Change (%)

Pool Fee APR (%)

Impermanent Loss (%)

-5.72%

1-Year HODL Value ($)

$15,000.00

Net LP Position vs HODL ($)

+$2,142.14

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Evaluating Liquidity Provisioning vs Buy-and-Hold Strategies

Automated Market Makers (AMMs) use constant product algorithms ($x \times y = k$) to maintain token balances in decentralized liquidity pools. While providing liquidity generates trading fee yield, it introduces Impermanent Loss (IL) when relative prices between paired assets move in opposite directions or at unequal speeds.

To accurately determine if providing liquidity is more profitable than simply holding spot assets outside the pool (HODLing), investors must model relative price changes against collected trading fees over time. The Web3 Liquidity Pool Impermanent Loss vs HODL Yield Simulator executes client-side mathematical simulations to evaluate whether trading yields successfully surpass divergence loss.

Governing Mathematical Formulas

This client-side AMM simulator models relative price performance using standard constant-product equations:

• Relative Price Ratio Change ($k$): k = (1 + Price Change A %) / (1 + Price Change B %)
• Impermanent Loss Factor: IL (%) = [(2 × √k / (1 + k)) - 1] × 100
• Baseline HODL Value ($): HODL ($) = Capital × [1 + (Price Change A % + Price Change B %) / 200]
• Net LP Strategy Value ($): Net LP ($) = HODL ($) × (1 + IL %) + (Capital × Fee APR %)

Worked Calculation Examples

Consider the default inputs loaded into this calculator:

• Initial LP Deposit: $10,000.00 (split 50/50 between ETH and USDC)
• Asset A (ETH) Price Change: +100.0%
• Asset B (USDC) Price Change: 0.0%
• Pool Fee APR: 30.0% over 1 year

A +100% price shift on Asset A relative to stable Asset B establishes $k = 2.0$. Applying the constant product formula gives an Impermanent Loss of -5.72%. Holding spot assets generates a baseline HODL value of $15,000.00 ($5k ETH becomes $10k + $5k USDC). In the liquidity pool, price divergence adjusts pool value to $14,142.14, while earning $3,000 in trading fees brings total pool value to $17,142.14—outperforming HODLing by +$2,142.14.

Frequently Asked Questions

1. Why is impermanent loss referred to as "impermanent"?

Divergence loss is unrealized as long as capital remains in the pool. If token price ratios return to their exact original entry levels, the impermanent loss drops back to zero percent.

2. How does trading volume affect liquidity pool profitability?

Higher trading volume increases total swap fee collection within the pool. When fee income exceeds price divergence loss, liquidity providers earn a net positive return over holding the underlying spot assets.

3. Are dual-volatile token pools riskier than stablecoin pools?

Dual-volatile pools (e.g., ETH/SOL) experience impermanent loss when token prices diverge from one another. If both assets move up or down in equal percentage proportions, impermanent loss is zero.

4. How do auto-compounding vaults help LP returns?

Yield aggregators continuously harvest accumulated trading fees and re-deposit them into the liquidity pool, harnessing compound growth to offset impermanent loss faster.

5. Is this LP vs HODL calculator private and secure?

Your inputs are not sent to our servers. All calculations execute locally in your browser using JavaScript logic. The page may still load standard third-party ad services.

Last updated: October 2026