How to Manage Impermanent Loss
Impermanent loss is the main risk of liquidity provision. Learn strategies to minimize IL while maximizing fee earnings.
IL by Price Divergence
| Price Change | IL |
|---|---|
| . . . . . . . | . . - |
| 1.25x | 0.6% |
| 1.5x | 2.0% |
| 2x | 5.7% |
| 5x | 25.5% |
IL Mitigation Strategies
- Choose correlated pairs (stETH/ETH)
- Use stablecoin pools
- Narrow time horizon
- High-fee pools
. -
Track your LP performance with Fensory. See real returns.[Start Tracking →](https://www.fensory.com)
Step-by-Step Instructions
1
Understand Your Risk
Calculate potential IL for your pool based on historical volatility.
Tips
- ✓Use IL calculators
2
Choose Safer Pools
Correlated assets (stETH/ETH) and stablecoin pools have minimal IL.
Tips
- ✓Trade off: often lower APY
3
Set Price Range (CL)
For concentrated liquidity, wider ranges = less IL but lower returns.
Tips
- ✓Narrow = more fees, more IL risk
4
Monitor Position
Track your position value vs holding. Exit if IL exceeds fees.
Tips
- ✓Fensory shows this automatically
5
Harvest and Compound
Regularly claim fees to lock in gains.
Tips
- ✓More frequent = lower gas efficiency
6
Know When to Exit
Exit when IL significantly exceeds fee earnings potential.
Tips
- ✓IL becomes permanent upon withdrawal