Five Lines, One Verdict: The LP P&L Sheet That Tells You If a Pool Is a Business or a Hobby

Every liquidity provider can tell you what their pool pays. Almost none can tell you what their position actually earned.

That gap is the whole problem. Fees are revenue. Revenue is not profit, and a pool with a gorgeous APY can hand you a net loss without ever doing anything obviously wrong. The fix isn't a fancier dashboard — it's five lines on a napkin, filled in honestly, once a month.

Here's the sheet.

Why fees are the least useful number on the page

Fee APR is quoted as if the pool pays you in a vacuum. It doesn't. Every fee dollar arrives attached to a change in your token composition, and every position carries costs that never appear on the pool page: gas to enter, gas to exit, the swaps you do to compound, the time you spend watching ranges, and the return you gave up by putting capital here instead of somewhere boring.

Strip those out and you get a number that actually means something. That number is net return, and you can only get to it by subtraction.

Line 1: Fees earned

Start with the easy one, but be precise about what you're counting. Fees accrue in both assets of the pair, and their dollar value on the day you count them is not the dollar value you received. If a pool pays you in a token that dropped 30% the following week, that fee income shrank with it.

Pull the actual fee accrual from your position, convert at a single consistent date, and write it down. Do not annualize yet. Keep everything in dollars over a fixed window — 30 days or 90 days is plenty — so the lines can be added and subtracted without a spreadsheet argument.

Line 2: Impermanent loss, or divergence loss

The honest name for this is divergence loss, because nothing about it is impermanent unless the price comes back. It's the gap between what your position is worth and what you'd have if you'd simply held the two tokens in the same starting proportions and done nothing.

You don't need to derive the formula by hand. Most position trackers show it. What matters is that you record it as a negative line, in dollars, next to the fees. A pool paying 18% in fees while bleeding 20% in divergence is a pool that is losing you money. That's not a rare scenario — it's the default in any pair where one side trends hard in one direction.

One nuance worth internalizing: in a range-bound market, divergence loss is small and fees dominate. In a trending market, the reverse. Your pool choice is really a bet on which regime you're in, whether or not you thought of it that way.

Line 3: Gas, rebalancing, and the cost of doing business

This is the line retail LPs skip, and it's the one that quietly eats small positions alive.

• Gas to open the position.
• Gas to close it, someday.
• Gas for every rebalance in a concentrated range, and there will be more of them than you planned.
• Gas for any swap you do to convert fee income or top up.
• The spread you pay when you rotate capital between pools.

On a $10,000 position, a handful of rebalances plus an exit can run into the low hundreds of dollars. On a $1,500 position, those same costs can erase an entire quarter of fees. Write the total down as a negative.

Line 4: Opportunity cost

The hardest line, because it forces you to name your alternative. Pick a real one. If the honest answer is 'I would have parked this in a stablecoin lending market at roughly 4%,' use that. If it's 'I would have just held the ETH,' use that — though note that holding the ETH is already baked into the divergence line, so use a stable benchmark to avoid double counting.

Opportunity cost isn't a cash outflow. It's the hurdle your position has to clear to be worth the risk, the gas, and the attention. A pool that returns 3% when the risk-free-ish alternative returns 4.2% did not make you money in any meaningful sense.

Line 5: Net return

Add it up:

That's 1.4% on a $10,000 position over 90 days, or roughly 5.7% annualized against a 4.2% benchmark — about 1.5 points of excess return for taking on smart contract risk, divergence risk, and the labor of managing a position. Is that a good trade? Maybe. But now you're the one deciding, with numbers, instead of a marketing page deciding for you.

Run the same sheet on a weaker pool and the net line often comes out negative even while the fee APR looks impressive. That's the entire point of doing this.

Two rules for reading the sheet

Keep the units consistent. Every line in dollars, every line valued at the same date, every line covering the same window. A sheet that mixes annualized APY with one month of gas is a sheet that lies to you.

Cadence beats precision. Once a month, roughly right, beats a perfect model you build once and never open again. Fifteen minutes with a calculator is enough to catch the pools that are quietly costing you money.

What the sheet can't tell you

It won't warn you about a smart contract exploit, a depeg at 3 a.m., or a token that gets paused. Those are risk factors, and they belong in a separate mental column labeled 'things that could make this number irrelevant.' The P&L sheet tells you whether the boring, expected case is working. That's most of the battle.

Fees are the pitch. Net return is the verdict. Write down five lines and let the arithmetic have an opinion.