What Is the Mathematical Formula That Defines the Impermanent Loss Curve?

The formula for impermanent loss is IL = 2 sqrt(k) / (1 + k) – 1, where 'k' is the price ratio of the two assets from the time of deposit to the time of withdrawal. This formula calculates the percentage loss compared to simply holding the assets.

The curve shows that small price divergences have a minimal impact, but the loss increases exponentially as the price ratio moves further from 1. For example, a 2x price change results in about a 5.7% loss, while a 5x change leads to a 25.5% loss.