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% di...

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 s...

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.