Impermanent Loss in Concentrated Liquidity: The Math, the Myths, and How to Model It
By RangeScout Research · 6 min read · 2026-03-24
Impermanent loss is worse in concentrated liquidity pools than in Uniswap V2 — but it is also fully modelable. Here is the exact formula, why "IL recovery" is mostly a myth, and how to stress-test a position before you open it.
The actual formula nobody shows you
For a full-range V2-style pool, impermanent loss at price ratio k (new price / old price) is:
IL(k) = 2·√k / (1 + k) − 1
At k=2 (price doubles), IL = −5.7%. At k=4, IL = −20%. At k=0.5, IL = −5.7% again — it's symmetric.
Concentrated liquidity makes this significantly worse. When you set a range [p_low, p_high] and price moves *outside* the range, your position converts entirely to one asset and IL stops accruing — but so does all your fee income. You're now holding a 100% directional bag with no upside from the pool.
Inside the range, the effective IL is amplified by your concentration factor, which for a tight range around the current price can be 10-50x. That's why a 2% price move in a concentrated position can produce more IL than a 20% move in a V2 pool. This applies equally on Uniswap V3, Meteora DLMM, Orca Whirlpools, and every other concentrated liquidity protocol.
The "IL recovery" myth
You'll see influencers claim "IL is temporary — if price comes back, your IL reverses." That's true for passive V2 positions, but it's misleading for concentrated liquidity for two reasons:
1. You rebalance. Every rebalance locks in IL at the current price. If you rebalanced while ETH was at $2,400 and it's now back to $3,000, you realized the loss and can't recover it. Same story for SOL, ARB, or any volatile asset.
2. Price paths matter. Two paths with the same endpoint produce wildly different IL. A smooth move to k=1.5 and back produces almost no IL. A volatile whipsaw that crosses your range three times and back produces cumulative IL that never reverses because each out-of-range event forced a rebalance.
The only honest way to model IL is to simulate thousands of realistic price paths — not assume price comes back.
Stress-testing before you deposit
RangeScout runs a scenario stress test on every range it recommends: what is your IL if price drops 20%? Jumps 50%? Has 3x its historical volatility for the next week? You see the numbers *before* you click deposit, not after you've lost money.
Try it on any pool across 9 supported chains — Uniswap V3, Meteora, Orca, PancakeSwap V3, Trader Joe, or any concentrated liquidity protocol. [Paste an address here](/analyze) and get the full IL scenario grid in 30 seconds.