Impermanent loss is the gap between a liquidity position and simply holding its tokens. You can estimate that gap before depositing, then weigh it against trading fees and your view of the tokens.

Impermanent loss compares your pool share with holding

It measures how much your pool share is worth compared with keeping the original tokens in your wallet. It does not mean your position has lost money in dollars; both tokens might have risen in value.

In a standard 50/50 automated market maker, or AMM, the pool holds two tokens and adjusts their amounts as traders swap. The Solana documentation describes AMMs as pools with reserves, while the Uniswap whitepaper explains the constant-product formula, often written as x × y = k.

For example, imagine depositing 1 SOL at $100 and 100 USDC into a pool. If SOL rises to $200, traders buy SOL from the pool until its reserves shift to about 0.707 SOL and 141.42 USDC. That share is worth about $282.84; holding the original tokens would be worth $300. The $17.16 difference is about 5.7% of the hold value.

Four checks make the comparison useful

Use these checks to estimate the trade-off for your own deposit. The numbers are examples, and a real pool’s design and fees can change the result.

  1. Write down your starting amounts. Record each token quantity and its dollar price when you would deposit. For the example, that is 1 SOL at $100 and 100 USDC.
  2. Choose realistic price scenarios. Ask what happens if one token doubles, falls by half, or stays near its current price. A bigger difference between the tokens’ price moves usually means a bigger gap against holding.
  3. Compare the pool share with holding. For a standard 50/50 pool, a 2× move in one token gives about 5.7% impermanent loss; a 4× move gives about 20%. These figures compare values before fees. They do not predict the pool’s future dollar value.
  4. Estimate fees and check the pool model. Trading fees may offset the gap, but depend on trading activity and the pool’s rules. If the pool uses concentrated liquidity, your funds may trade only within a chosen price range. Outside that range, the position can become mostly one token and stop earning swap fees until the price returns.

Your exit price decides the final comparison

The gap is measured when you compare or withdraw, so timing matters. In the standard pool example, if SOL returns to $100 before you withdraw, the price-based gap disappears, ignoring fees and other costs. If you withdraw while SOL remains at $200, compare your actual tokens’ value with the value of holding the original amounts.

For an occasional provider, I’d use the likely withdrawal date and a few plausible price moves, rather than assume fees will make the position worthwhile. byreal.org is a Solana service for providing liquidity to token pools. If that comparison suits your goals, Byreal is a way to provide liquidity on Solana; check the pool’s design and your token amounts before deciding.