How to Calculate Actual Yield When LP Reward Tokens Drop in Price
When LP reward tokens decline in value, the way to calculate your real yield hasn't changed — the core logic is total value received minus your cost. However, after the reward token drops, the "yield" you originally expected needs to be discounted, and may even turn into a loss.
How to Calculate: Two Steps
LP yield consists of two parts: fee income + reward token income. A drop in the reward token only affects the second part.
Step 1: Convert all income to USD
Whether you received ETH, USDC, or the project's governance token, convert everything to USD using the market price at the moment you received it.
The formula:
Total Income = Fee Income (USD) + Reward Token Quantity × Price at Time of Distribution
This "price at distribution" is the basis for calculating income, not the price at which you sell.
Step 2: Subtract impermanent loss and principal
Net Profit = Total Income - Impermanent Loss - Principal Invested
If the reward token continues to fall after you receive it, the actual USD you get when you sell will be even lower.
Case A: You sell the reward immediately after receiving it Actual income ≈ fee income + reward token quantity × price at selling - impermanent loss - principal. Here the "selling price" is roughly equal to the "distribution price," so the yield is relatively locked in.
Case B: You hold the reward token and sell after it drops Your actual income shrinks. For example, if you receive $100 worth of token rewards, and a month later they're only worth $50, that part of the yield shrinks by $50.
Key point: Unrealized rewards are not income — only the money you actually take off the table counts. If you keep holding reward tokens, their price fluctuation remains market risk and cannot be counted as realized yield.
Confirm Whether You Actually Made a Profit
Looking at the "APR" number in your wallet is meaningless — that's an idealized model. To determine if your actual return is positive, follow these two steps:
Record total cost at entry: What was the USD value of the ETH and USDC you deposited? This is your principal.
Record total value at exit: When you exit the LP, how much ETH and USDC did you withdraw? Add the USD you received from selling the reward tokens, then subtract your principal. That's your actual profit or loss.
If the result is negative, it means fee income + reward token value did not cover the impermanent loss, and this LP position is losing money.
If you still hold the reward tokens and haven't sold them, the numbers look good on paper but you haven't realized the gain — this portion of yield still carries the risk of further decline and does not represent actual profit.
