Liquidity Pool Token Ratios Explained: How AMMs Keep DeFi Pools Balanced
Impermanent Loss Calculator
Token Input
How It Works
Liquidity pools maintain a balance where x × y = k. When token prices change, the pool automatically rebalances through trades, causing impermanent loss.
With a 50/50 ratio, your share will change based on price movements. The calculator shows how much you've gained or lost compared to holding the tokens directly.
Results
Current Pool Value
Your total pool value: $2,000.00
Total value if held directly: $2,000.00
Important: This is a simplified calculation. Real-world impermanent loss may vary based on trading volume and fee structures.
When you add ETH and USDC to a DeFi liquidity pool, you’re not just depositing tokens-you’re setting up a tiny market. That market runs on math, not humans. And at the heart of that math is something called liquidity pool token ratios. These ratios decide how your money behaves, how much you earn, and even whether you lose money when prices move. If you’ve ever wondered why your LP position lost value even though the price of your tokens went up, this is why.
What Are Liquidity Pool Token Ratios?
A liquidity pool is a smart contract that holds two (or more) tokens. Traders swap between them, and you, as a liquidity provider, earn fees from those trades. But for this system to work, the pool has to keep the tokens in a specific balance. That balance is the token ratio. For example, in a 50/50 ETH/USDC pool, half the total value is ETH, and half is USDC. If the pool has $10,000 worth of ETH and $10,000 worth of USDC, the ratio is 50/50. If someone buys $1,000 worth of ETH using USDC, the pool loses ETH and gains USDC. Now it’s $9,000 ETH and $11,000 USDC. The ratio changed. And that change is what makes the price move. This isn’t like a stock exchange where buyers and sellers place orders. There’s no one selling ETH at $3,000. Instead, the price is calculated automatically using a formula: x × y = k. That’s the constant product formula. x is the amount of one token, y is the amount of the other, and k is a fixed number. As long as k stays the same, the price adjusts naturally as trades happen.Why the 50/50 Ratio Isn’t Always Best
Most beginners start with 50/50 pools because they’re simple. Uniswap, PancakeSwap, and SushiSwap all default to this. But it’s not always the smartest choice. Imagine you deposit $1,000 worth of ETH and $1,000 worth of BTC into a pool. A week later, ETH goes up 50%, but BTC drops 30%. Your pool now holds more ETH (in value) and less BTC. The ratio is no longer 50/50. When you withdraw, you get back less ETH and more BTC than you put in. That’s impermanent loss-and it happens because the 50/50 ratio forced your assets to rebalance against the market. That’s why advanced users avoid pairing highly volatile tokens. Instead, they use pools with tokens that move together. Like USDC and DAI-both stablecoins. Their prices rarely drift far apart, so the ratio stays stable. No big losses.Weighted Pools: The New Way to Control Your Exposure
Balancer changed the game in 2020 by letting you set custom ratios. Now you can make an 80/20 pool. That means 80% of the pool’s value is in one token, 20% in the other. Why would you do that? Let’s say you believe ETH will go up, but you still want to earn fees from trading. Instead of putting 50/50 ETH/USDC, you put 80/20. You’re still exposed to ETH’s price, but now you’re not forced to sell half your ETH every time someone trades. You keep more of your upside. This also reduces impermanent loss. If ETH rises, you don’t lose as much because you started with more of it. The pool doesn’t have to rebalance as aggressively. You’re betting on price direction without fully exiting the market. Weighted pools are perfect for treasury managers, DAOs, or anyone holding multiple tokens and wanting to earn yield without dumping their positions. You can even build a 3-token pool like 50% USDC, 30% ETH, 20% LINK-something you couldn’t do with basic AMMs.Stablecoin Pools: The Quiet Winners
Curve Finance doesn’t use the constant product formula. It uses something called the stableswap algorithm. This is designed for tokens that are meant to have the same value-like USDC, DAI, USDT, and sUSD. These pools keep ratios extremely close to 1:1. Even if one stablecoin dips to $0.999, the algorithm nudges it back. That means almost zero impermanent loss. And because the price stays flat, slippage is tiny. Traders love it for swapping between stablecoins with minimal cost. But here’s the catch: you can’t make big gains here. The tokens don’t move much. So APRs are lower. But if you’re holding stablecoins anyway, this is the safest way to earn 3-6% annually with almost no risk.
Concentrated Liquidity: The 2025 Standard
Uniswap v3 introduced concentrated liquidity in 2021. It’s now the most efficient model in 2025. Instead of spreading your funds across the entire price range, you choose a specific range-say, $2,800 to $3,200 for ETH/USDC. Your capital only works inside that range. Outside of it, your funds earn nothing. But inside? You get 10x or more of the fees you’d earn in a regular pool. Why? Because you’re concentrating your liquidity where most trading happens. If ETH trades mostly between $2,800 and $3,200, you’re not wasting half your money at $1,000 or $10,000. You’re focused. But this requires active management. If ETH breaks out of your range, you stop earning fees until you adjust it. That’s why it’s not for beginners. But for experienced users, it’s the best way to maximize returns.How LP Tokens Work
When you deposit into a pool, you don’t get back your ETH and USDC right away. You get LP tokens-digital receipts. These represent your share of the pool. If you put in 1% of the total liquidity, you get 1% of the LP tokens. Every time someone trades in the pool, fees are distributed to LP token holders. You can see your earnings grow in your wallet. To get your original tokens back, you burn the LP tokens. The smart contract calculates how much of each token you’re owed based on the current ratio. That’s why timing matters. If the ratio has shifted a lot, you might get back more of one token and less of the other. LP tokens are ERC-20 or BEP-20 tokens. You can check them on Etherscan or BscScan. They’re usually named after the pair: ETH-USDC-LP, for example.What Happens When Ratios Get Out of Whack?
When a token’s price changes on an exchange, but not in the pool, arbitrage traders step in. They buy the cheap token from the pool and sell it on a centralized exchange. This brings the pool’s price back in line. That’s good for the market. But bad for you if you’re a liquidity provider. Every time an arbitrageur trades, they’re adjusting the ratio-and you’re the one losing the difference. This is why liquidity providers often lose money even when the asset they hold goes up. The pool’s internal math forces them to sell high and buy low, automatically. The solution? Use pools with correlated assets. Or use concentrated liquidity to lock your exposure in a tight range. Or stick to stablecoins.
How to Choose the Right Ratio for You
Here’s a simple guide:- Beginner? Stick to 50/50 stablecoin pools (USDC/DAI). Low risk, steady returns.
- Want yield on volatile assets? Use 80/20 or 70/30 weighted pools. Keep more of your main asset.
- Confident in price range? Use concentrated liquidity. Pick a range where you think the price will stay. Higher fees, more work.
- Avoid? Pairing unrelated volatile tokens (like ETH and SHIB). High impermanent loss risk.
What to Watch Out For
- Impermanent loss: It’s not a myth. It happens every time prices diverge from your pool’s ratio. - Gas fees: Adjusting concentrated liquidity costs money. Don’t tweak your range too often. - Smart contract risk: Always check if the pool is audited. Uniswap and Balancer are safe. Newer pools? Look for CertiK or PeckShield audits. - APR isn’t everything: A 50% APR might sound great, but if the token drops 40%, you’re still down.Final Thought: Ratios Are Your Strategy
Liquidity pool token ratios aren’t just technical details. They’re your trading strategy in disguise. Choosing a 50/50 pool is a bet that prices won’t move. Choosing an 80/20 is a bet that one token will outperform. Choosing concentrated liquidity is a bet on where the price will go. The best liquidity providers don’t just deposit and forget. They watch ratios. They adjust. They pick pools that match their market view. That’s how you turn liquidity provision from a lottery ticket into a strategy.What happens if the token ratio in my liquidity pool changes?
When the ratio changes, it means the price of one token moved relative to the other. This triggers impermanent loss-your share of the pool’s value may drop even if the tokens’ market price went up. The pool automatically rebalances through trades, and you end up with more of the cheaper token and less of the more expensive one when you withdraw.
Why do some liquidity pools have 80/20 ratios instead of 50/50?
80/20 and other weighted ratios let liquidity providers keep more exposure to one asset while still earning trading fees. If you believe ETH will rise, an 80/20 ETH/USDC pool lets you hold more ETH than you would in a 50/50 pool, reducing the risk of losing your upside to automatic rebalancing.
Are stablecoin pools safer than regular ones?
Yes. Stablecoin pools like USDC/DAI or USDT/USDC use special algorithms to keep prices locked at $1. Because the tokens rarely deviate, impermanent loss is minimal. They offer lower yields-usually 3-6%-but near-zero risk compared to volatile token pairs.
What is concentrated liquidity, and why is it better?
Concentrated liquidity lets you place your funds within a specific price range, like $2,800-$3,200 for ETH. Your capital only earns fees within that range, but it’s 10x more efficient than spreading it across all prices. It’s better because you earn more fees with less capital-but you must actively manage your range or risk earning nothing if the price moves outside it.
How do I know if I’m losing money in a liquidity pool?
Compare the value of your LP tokens to what you originally deposited. If the total value of your withdrawn tokens is less than your initial deposit-even after accounting for fees-you’ve experienced impermanent loss. Tools like DeFi Saver or Zapper can track this automatically.
Can I lose more than I deposited in a liquidity pool?
No. You can’t lose more than your initial deposit in a standard liquidity pool. Even with impermanent loss, you only lose part of your capital-not more than you put in. However, if the smart contract is hacked or the token you’re providing becomes worthless, you could lose everything. Always audit the protocol before depositing.
21 Comments
Eli PINEDA
November 3, 2025 at 15:04
ok so like… i just put eth and usdc in a pool and forgot about it… now my balance is weird and i think i lost money but also made fees?? idk what happened but my wallet looks like a crime scene 😅
Phil Higgins
November 4, 2025 at 14:36
It’s not about the math. It’s about the alignment of your belief with the market’s rhythm. The 50/50 pool is a surrender to equilibrium. But if you truly believe in ETH’s ascent, you’re not a liquidity provider-you’re a silent bull. The ratio becomes your manifesto.
Most people treat DeFi like a vending machine. You insert coins, you get candy. But this? This is philosophy with gas fees. The pool doesn’t care if you’re right. It only cares if your math holds.
Impermanent loss isn’t a bug. It’s the universe correcting overconfidence. You wanted exposure without selling? Fine. But the market will rebalance you whether you like it or not.
That’s why stablecoin pools are the quiet monks of DeFi. No drama. No volatility. Just steady, unsexy yield. They don’t make headlines. But they don’t lose your life savings either.
Concentrated liquidity? That’s not a feature. That’s a mindset. You’re not providing liquidity. You’re betting on a price range like a market maker in 17th-century Amsterdam. The capital you leave outside the range? That’s your doubt.
And yet… we still do it. Because the alternative is holding cash in a world that prints money like confetti. We gamble with algorithms because we believe in something bigger than ourselves.
Maybe that’s the real liquidity.
Genevieve Rachal
November 6, 2025 at 10:13
lol beginners think they’re ‘earning yield’ when they’re just getting arbed into oblivion. You think you’re smart putting ETH/SHIB in a pool? Congrats, you just funded someone’s weekend trip to Bali. And no, ‘high APR’ doesn’t make up for losing 70% of your ETH. Go read the whitepaper before you throw money into a black hole.
And don’t even get me started on those ‘weighted pools’-you think you’re clever with 80/20? You’re just delaying the inevitable. The market doesn’t care how you feel about your allocation. It’ll crush you the same way.
Stablecoin pools? At least you’re not an idiot. But you’re still wasting your time. 5% APR? For what? To watch your USDC sit there while inflation eats your rent money? You’re not investing. You’re just… existing.
Concentrated liquidity? Oh honey. You think you’re a trader now? You’re just a babysitter for a smart contract that’ll drain you when you’re not looking. And don’t even mention gas fees-every time you adjust your range, you’re paying to play your own version of Russian roulette.
DeFi isn’t for you. Go back to your savings account.
Mehak Sharma
November 7, 2025 at 13:53
Let me tell you something-this isn’t just about ratios, it’s about intention. When you pick a 50/50 pool, you’re saying ‘I trust the market to stay flat.’ When you go 80/20, you’re whispering to the blockchain: ‘I believe in this asset more than the other.’
And concentrated liquidity? That’s not a feature-it’s a declaration of war on inefficiency. You’re saying: ‘I know where the price will dance, and I’m not wasting a single satoshi outside that rhythm.’
Stablecoin pools? They’re the yoga of DeFi. Calm. Centered. No drama. You’re not chasing moonshots-you’re just letting your idle assets breathe while earning a quiet dividend.
But here’s the secret: the real winners aren’t the ones who optimize ratios. They’re the ones who understand timing. They watch price action like a hawk. They adjust not because they’re scared, but because they’re strategic.
And if you’re still using Uniswap v2? Honey, you’re driving a Model T in a Tesla world. The future isn’t just weighted-it’s concentrated, audited, and intentional.
Don’t just provide liquidity. Curate it. Like a garden. Water it. Prune it. Watch it grow.
And always, always audit the contract. If it’s not on CertiK, it’s not ready for your money.
Bruce Bynum
November 8, 2025 at 17:59
Just stick to USDC/DAI if you’re new. Easy. Safe. You’ll sleep better.
Everything else is extra.
Vicki Fletcher
November 8, 2025 at 21:23
Wait… so if I put in ETH and USDC, and ETH goes up… I get back LESS ETH? That doesn’t make sense… unless… oh no. Did I just get mathed? 😳
So… the pool is like… a mirror that flips your gains? And I’m the one who gets the short end? But I thought I was ‘earning fees’? This feels like a trap…
Is this why people say DeFi is ‘high risk’? Because the math is secretly working against you? I didn’t sign up for this…
Can I… un-deposit? Is there a ‘undo’ button? Why didn’t anyone tell me this? I thought I was investing… not being… manipulated by an algorithm?
Also… what’s ‘impermanent loss’? Is it like… temporary sadness? Or is it permanent? I think I’m crying. I just lost $200. I think.
Can someone explain this like I’m 5? Please? I just want to earn some yield without feeling like I’m being played by a robot.
Edgerton Trowbridge
November 10, 2025 at 04:27
It is imperative to recognize that the underlying mechanism governing liquidity pools is predicated upon the invariant x * y = k, a mathematical construct that enforces price discovery through arbitrage, not human sentiment. The 50/50 paradigm, while intuitively appealing, introduces structural inefficiencies in the presence of asymmetric volatility. Consequently, the adoption of weighted pools-specifically those with skewed allocations such as 80/20 or 70/30-represents a rational optimization strategy for liquidity providers who seek to mitigate impermanent loss while preserving directional exposure.
Moreover, concentrated liquidity, as implemented by Uniswap v3, constitutes a paradigmatic advancement in capital efficiency. By permitting liquidity providers to allocate capital within discrete price bounds, this innovation effectively transforms passive liquidity provision into an active market-making function. The resultant fee accrual is non-linear with respect to capital deployment, yielding disproportionate returns within targeted ranges.
It is further recommended that practitioners prioritize audited protocols, particularly those vetted by reputable firms such as CertiK or PeckShield, to mitigate existential smart contract risk. The deployment of capital into unvetted or novel pools constitutes an unacceptable exposure to existential loss, irrespective of projected APR.
Stablecoin pools, while yielding lower returns, remain the most prudent option for capital preservation. Their utilization of stableswap algorithms minimizes price deviation, thereby neutralizing impermanent loss to near-zero levels. For the risk-averse, this constitutes the optimal equilibrium between yield and safety.
Finally, one must acknowledge that liquidity provision is not a passive income strategy. It is a disciplined, dynamic activity requiring continuous monitoring, recalibration, and strategic alignment with macroeconomic and on-chain trends. To treat it otherwise is to invite financial erosion.
Wesley Grimm
November 11, 2025 at 07:32
Everyone’s talking about ratios like they’re some kind of secret sauce. Newsflash: you’re still getting arbed. Every single time. You think you’re smart with your 80/20? The bots see it. They front-run you. They drain your pool while you’re checking your phone.
Concentrated liquidity? Great. Now you have to babysit it 24/7. And when you’re asleep? The price moves. You lose everything. And you pay gas to fix it.
Stablecoins? You’re earning 5% while inflation eats 3%. Congrats. You’re a glorified bank teller with a wallet.
The only thing that’s ‘balanced’ here is your losses.
Matthew Affrunti
November 13, 2025 at 04:25
Man, I used to think LPs were just free money. Now I get it-it’s like being a waiter at a restaurant where the customers keep swapping your plates without asking.
But hey, if you’re chill and just want to make a little extra off your stablecoins? USDC/DAI is your friend. No stress, no drama.
And if you’re into the game? Concentrated liquidity is like playing chess instead of checkers. You gotta think ahead.
Just don’t throw your whole portfolio into SHIB/ETH. Trust me. I learned the hard way.
Nadiya Edwards
November 15, 2025 at 02:33
They don’t want you to know this-but the whole DeFi system is rigged. The ‘constant product formula’? A scam. The ‘arbitrage’? Just Wall Street bots cleaning out small farmers like you. And ‘impermanent loss’? That’s just corporate jargon for ‘we stole your money.’
Why do you think the big players push ‘weighted pools’ and ‘concentrated liquidity’? So you think you’re advanced. So you spend hours tweaking ranges. So you pay more gas. So you give them more data.
They don’t care if you win. They just want you to keep playing. And the more you play, the more they extract.
Stablecoins? Even those are controlled. DAI is backed by crypto… which is backed by nothing. It’s all a house of cards.
Don’t be fooled. This isn’t finance. It’s psychological warfare.
ISAH Isah
November 15, 2025 at 18:51
It is observed that the Western-centric discourse on liquidity provision neglects the fundamental asymmetry in risk exposure inherent in algorithmic market-making protocols. The 50/50 paradigm is a colonial imposition upon decentralized finance. Why must we default to binary token pairings? Why not a 40/30/20/10 pool? Why not a liquidity structure aligned with African commodity-backed assets? The absence of such innovation is not technical-it is ideological.
Furthermore, the notion of ‘impermanent loss’ presupposes a Western fiat benchmark. In Nigeria, where the Naira depreciates daily, the very concept of ‘value preservation’ is a luxury. We do not provide liquidity to avoid loss. We provide liquidity to survive.
Concentrated liquidity? A tool for the privileged. The gas fees alone exclude the unbanked. This is not decentralization. It is exclusion dressed in blockchain.
Perhaps the real ratio is not between ETH and USDC. But between the haves and the have-nots.
bob marley
November 16, 2025 at 08:23
bob marley says: you think you're smart with your 80/20? you're just feeding the bots. they see your range before you even hit confirm. and that 'steady yield' you're getting? it's just the crumbs they leave you while they eat the whole cake.
and why do you think stablecoin pools are 'safe'? because they're the only ones that don't have a rug pull... yet.
you're not a liquidity provider. you're a data point.
peace out.
naveen kumar
November 16, 2025 at 13:06
Contrary to popular belief, the constant product formula does not ensure price stability-it ensures arbitrage efficiency. The so-called 'impermanent loss' is not a flaw but a feature designed to incentivize liquidity provision under volatility. The real issue is not the ratio but the lack of understanding among retail participants who treat DeFi as a lottery.
Weighted pools are not superior-they are merely a different form of exposure. Concentrated liquidity is not innovation-it is active management disguised as automation. The fee multiplier is real, but the risk is exponential.
Stablecoin pools are not safe-they are merely low-volatility. The risk of depegging, regulatory intervention, or issuer insolvency remains. CertiK audits do not guarantee safety-they guarantee marketing.
The notion that liquidity provision is a 'strategy' is a myth peddled by influencers. It is speculation with a fancy name.
Chris Strife
November 17, 2025 at 08:38
US only. Everything else is fake. Why are you using PancakeSwap? That’s a crypto casino. Uniswap is the only real thing. And if you’re not using concentrated liquidity, you’re literally throwing money away. You think you’re earning yield? You’re paying gas to fund Chinese bots.
Stablecoins? Use USDC. DAI is a scam. sUSD? Forget it. Only USDC is real. Everything else is fake news.
And if you’re from Africa or India? Don’t even try. You don’t understand the system. Go back to your local bank.
Masechaba Setona
November 19, 2025 at 01:09
Everyone’s so serious about ratios… like it’s some sacred text 😒
What if… we just… didn’t do it?
What if the real win is not being in a pool at all?
Like… holding ETH and chilling?
Just a thought. 🤷♀️
Kymberley Sant
November 19, 2025 at 01:30
ok so i just put 1000 usdc and 1000 eth in a pool and now i have 980 eth and 1020 usdc?? did i just lose eth? or did i gain usdc? idk anymore my brain is fried
why does it feel like the pool is stealing from me but also giving me money??
also why is everyone talking about 'impermanent loss' like its a disease??
can someone just tell me if im up or down??
Debby Ananda
November 19, 2025 at 22:50
Ugh. Another ‘educational’ post about ratios. 🙄
Let me guess-you’re the type who thinks 80/20 makes you ‘advanced.’ Honey, you’re not a trader. You’re a bot’s snack.
Concentrated liquidity? Cute. You think you’re smart placing a range? The bots see it 0.3 seconds before you. They front-run you. Then you pay $50 in gas to move it. Again. Again. Again.
And stablecoins? 5% APR? For what? To watch your USDC sit there while the Fed prints 10x more? You’re not earning yield. You’re just delaying your inevitable loss to inflation.
DeFi isn’t for you. It’s for the people who understand that the real game isn’t in the pool-it’s in the blockchain’s dark corners.
And if you’re still using Uniswap v2? 🤦♀️
Go back to Coinbase.
❤️
Malinda Black
November 21, 2025 at 10:43
Hey, if you’re new to this-just start small. USDC/DAI. No stress. No panic.
And if you’re trying to ‘maximize yield’? That’s cool. But don’t feel bad if you don’t get it right away. Even the pros mess up.
DeFi isn’t about being the smartest person in the room. It’s about staying safe while learning.
And if you lose a little? It’s okay. You’re still ahead of the people who didn’t try.
Keep going. You’ve got this. 💪
mark Hayes
November 21, 2025 at 20:11
just chill. use usdc/dai. earn 5%. sleep well.
if you wanna play? go 80/20 eth/usdc.
if you wanna be a wizard? concentrated liquidity.
but if you're just trying to make some extra cash?
stop overthinking.
you're fine. 🙌
Bruce Bynum
November 23, 2025 at 06:38
Yeah, what they said. USDC/DAI. Done.
Matthew Affrunti
November 24, 2025 at 02:00
And if you're still confused? Just use Zapper or DeFi Saver. They auto-manage your pools. You just watch the numbers go up.
No brain required. 😊