nirholas

impermanent-loss-calculator

Calculate and explain impermanent loss for AMM liquidity positions, providing scenario analysis across price movements and comparison against simple holding strategies.

nirholas 247 69 Actualitzat fa 5 mesos
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Instal·la

npx skillscat add nirholas/three-ws/impermanent-loss-calculator

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SKILL.md

Impermanent Loss Calculator

When to use this skill

Use when the user asks about:

  • Calculating impermanent loss for a liquidity position
  • Understanding how IL works mechanically
  • Comparing LP returns vs holding
  • Estimating IL for various price scenarios
  • Deciding whether to provide liquidity based on IL risk

Explanation Framework

1. Gather Position Details

Collect from the user:

  • Token pair: The two assets in the pool (e.g., ETH/USDC)
  • Entry prices: Price of each token when liquidity was provided
  • Current prices: Price of each token now (or target scenario prices)
  • Pool type: Constant product (50/50), concentrated liquidity, or weighted
  • Position value: Total USD value deposited

2. Impermanent Loss Formula

For a standard constant product AMM (50/50 pool):

IL = 2 * sqrt(r) / (1 + r) - 1

Where r = (new price / entry price) of one token relative to the other.

Present IL as both:

  • A percentage loss relative to holding
  • An absolute dollar amount based on position size

3. Scenario Table

Generate a table showing IL at various price divergence levels:

Price Change Price Ratio (r) IL % IL on $10K Position
0% 1.00 0.00% $0
+/- 10% 1.10 or 0.91 -0.11% -$11
+/- 25% 1.25 or 0.80 -0.60% -$60
+/- 50% 1.50 or 0.67 -2.02% -$202
+/- 75% 1.75 or 0.57 -3.77% -$377
+/- 100% 2.00 or 0.50 -5.72% -$572
+/- 200% 3.00 or 0.33 -13.40% -$1,340
+/- 400% 5.00 or 0.20 -25.46% -$2,546

Customize the table with the user's actual position size.

4. Break-Even Analysis

Calculate how much fee income is needed to offset IL:

  • Required daily fee income = IL amount / days in position
  • Compare against actual or estimated pool fee APR
  • Determine the break-even time horizon
  • State clearly whether the current fee rate covers the IL

5. Concentrated Liquidity Adjustments

For concentrated liquidity positions (Uniswap V3, etc.):

  • IL is amplified inversely proportional to the range width
  • A position concentrated in a ±10% range has roughly 10x the IL of a full-range position at the same price move
  • If price exits the range, the position becomes 100% one token (maximum IL for that range)
  • Factor in capital efficiency gains — narrower ranges earn proportionally more fees

6. Holding vs LP Comparison

Present a side-by-side comparison:

Strategy Value if held Value as LP Difference
At entry $X $X $0
At current prices $Y $Z IL amount

7. Output Format

Summarize with:

  • Impermanent loss: X% ($Y)
  • Fees earned estimate: $Z
  • Net P&L vs holding: Positive or negative
  • Recommendation: Whether fees are likely to outpace IL
  • Risk note: Remind user that IL becomes permanent loss upon withdrawal if prices have diverged