Impermanent Loss Crypto: When Fees Beat the Price Move

Impermanent loss in a crypto liquidity pool is the gap between what an LP position is worth and what the same tokens would be worth left in a wallet, and fee income is the only thing that closes it. Fees outrun the loss only when what the position collects, as a share of its value, is larger than the loss figure for the price move it sat through. In a Uniswap v2 pool, a 2x move has to earn back 5.7% in fees before the LP is ahead of holding.

The impermanent loss crypto formula, straight from Uniswap

The loss depends on one input: how far the price ratio moved since you deposited. Uniswap's v2 returns documentation gives it for a constant-product pool as 2 * sqrt(price_ratio) / (1 + price_ratio) - 1. Fees, volume and pool size do not appear in it. That is the whole point: the loss is set by the price path, and the fee side is a separate ledger you have to win on.

Plug in a few ratios and the break-even fee yield falls straight out, because fees only have to match the loss to get you back to the hold result.

Direction does not matter. The docs note that a doubling and a halving cost the same, so a token that falls by half hurts an LP as much as one that doubles.

Worked example: 1 ETH and 100 DAI

Uniswap's own deposit example makes the gap concrete. An LP adds 1 ETH and 100 DAI, a 1% share of a pool holding 100 ETH and 10,000 DAI, with ETH at 100 DAI. ETH then moves to 120 DAI. Arbitrage rebalances the pool, and the LP's share is now worth 219.09 DAI. Had the LP simply held the 1 ETH and 100 DAI, they would be worth 220 DAI.

The shortfall is 0.91 DAI. That is the bill. Every swap fee the position earned while ETH moved from 100 to 120 DAI goes toward paying it, and only fees beyond 0.91 DAI count as profit over holding. If the move had been larger, the bill grows along the curve in the table above, not in a straight line.

Where the fee yield actually comes from

The headline fee rate overstates what an LP keeps. In v2, every pool charges a flat 0.30% fee that is added to the reserves, which is how LPs get paid. But a protocol fee now takes a cut: per Uniswap's fee documentation, it is set to approximately 1/6 of the swap fee on enabled pools, configurable by governance and live on all v2 pools since the December 2025 UNIfication proposal (as of October 2026).

So the break-even test is not "does 0.30% of volume beat the loss?" It is "does the LP's remaining share of the swap fee, after the protocol's cut, beat the loss for this move?" Run the comparison against the net number, not the sticker rate.

Concentrated liquidity: more fees per dollar, sharper exits

Uniswap v3 lets an LP pick a fee tier and a price range. The standard v3 fee tiers are 0.05%, 0.30% and 1%. The reason to narrow a range shows up in stablecoin pairs: the v2 DAI/USDC pair uses about 0.50% of its capital for trading between $0.99 and $1.01. A concentrated position puts its capital in the band where trades actually happen, so each dollar earns more of the fee flow.

The catch is that the fee side of the ledger can switch off. Only in-range liquidity earns fees: when the price leaves your range, the position stops accruing until it comes back. Per Uniswap's concentrated liquidity docs, an out-of-range position is no longer active and ends up holding a single asset. At that point the loss is locked against you while the income that was supposed to cover it has stopped.

Range width converts cleanly into price terms, since one tick is a 0.01% price step. Counting ticks tells you exactly how big a move the range absorbs while still earning, and so how much time in range the fees need to beat the loss.

A desk check before you add liquidity

1. Pick the price move you think the pair can make over your holding period, in both directions, and read the loss off the formula.
2. Estimate fee income at the pool's tier, then cut it by the protocol share if the pool has the protocol fee enabled.
3. For a ranged position, count only the time the price stays inside your ticks.
4. Compare. If expected net fees do not clear the loss for a plausible move, holding wins.

None of these inputs is knowable in advance, which is why this is a test of assumptions rather than a forecast. To run your own numbers through the curve, use our impermanent loss calculator breakdown.

Pool questions

How much does a 2x price move cost a liquidity provider?

In a constant-product pool, a 2x move leaves the position 5.7% behind simply holding the two tokens, before fees. A 4x move widens that to 20.0%.

Does a price drop cause the same impermanent loss as a price rise?

Yes. Uniswap's v2 documentation states that the loss is symmetric, so a halving in price costs the same as a doubling.

Do concentrated liquidity positions earn fees when out of range?

No. Once the price leaves the position's range, the liquidity stops earning fees until the price comes back, and the position sits in a single asset.

What fee does a Uniswap v2 pool pay liquidity providers?

Every v2 pool charges a flat 0.30% swap fee that goes into the reserves. Where the protocol fee is enabled, about 1/6 of that swap fee goes to the protocol, so the LP keeps the rest (as of October 2026).

Chain and source links

• Uniswap Labs docs, Understanding Returns (Uniswap v2 docs), accessed October 28, 2026
• Uniswap Labs docs, Fees (Uniswap docs), accessed October 28, 2026
• Uniswap Labs docs, Concentrated Liquidity (Uniswap docs), accessed October 28, 2026