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How to Manage Impermanent Loss

Minimize IL in liquidity pools. Strategies for smarter LP management.

LiquidityIntermediateEstimated reading time20 minutes6 stepsPrerequisites: Understanding of LP
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Quick Overview

1Understand Your Risk
2Choose Safer Pools
3Set Price Range (CL)
4Monitor Position
5Harvest and Compound
6Know When to Exit

Impermanent loss is the main risk of liquidity provision. Learn strategies to minimize IL while maximizing fee earnings.

IL by Price Divergence

Price ChangeIL
. . . . . . .. . -
1.25x0.6%
1.5x2.0%
2x5.7%
5x25.5%

IL Mitigation Strategies

  1. Choose correlated pairs (stETH/ETH)
  2. Use stablecoin pools
  3. Narrow time horizon
  4. High-fee pools

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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

Frequently Asked Questions

Related Resources

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