There are two primary flows of Path of Exile 2 Currency damage processing:

Outgoing Damage (When you hit an enemy)

Incoming Damage (When you're hit)

This article focuses primarily on incoming damage, i.e. how enemies’ hits are calculated against your defenses. If you're looking for outgoing damage, let me know—it's a different but equally intricate system.

Incoming Damage: Full Order of Operations
Let’s go step-by-step through the order in which incoming damage is calculated, from the moment a hit connects to the point damage is subtracted from Life, Energy Shield, or Mana.

Step 1: Hit Confirmation (Avoidance)
Attack vs. Evasion:

Attack hits roll against the defender's Evasion Rating.

If evaded, the hit does not occur.

Spell Suppression:

If a spell is suppressed, the damage dealt is reduced (typically 50%).

Block:

If you block the hit (either spell or attack), the hit is negated or partially reduced depending on your gear/mods.

If the hit fails due to any of the above, no damage is processed.

Step 2: Ailment and On-Hit Effects Check
The game now checks for secondary effects of a successful hit:

Can it ignite, shock, poison, or bleed?

Does it apply on-hit mechanics like Leech, Curse on Hit, or Mark?

Ailment Avoidance/Immunity modifiers are checked here.

No actual damage is applied yet—this only flags whether these effects will trigger.

Step 3: Base Damage Type and Conversion
Now the game establishes the base damage type(s) and calculates conversion effects:

Example: An attack that does 100 physical damage might convert:

50% to Cold (via skill gem)

25% to Fire (via gear)

Result: Final base damage becomes 25 Physical, 50 Cold, 25 Fire.

If using Damage Taken As mechanics (like 25% Physical taken as Fire), that comes later.

Step 4: Offensive Modifiers (Attacker’s Side)
These are multipliers that increase the base hit damage:

Increased/More Damage (e.g., "25% more Elemental Damage")

Critical Strike Multiplier

Increased Damage with Hits Against Chilled Enemies

Shock Effect (if already applied to target)

These are combined multiplicatively and apply before defenses.

Step 5: Defender’s Resistances
Now we apply resistances:

Fire, Cold, Lightning, and Chaos Resistance all reduce their respective damage types.

Resistance penetration or exposure from the attacker reduces effective resistance.

Capped at 75% normally (higher with gear/ascendancy).

Example:

75% Fire Resistance and 25% Fire Penetration = Effective 50% Fire Resist

Step 6: Armor and Flat Reduction (Physical Only)
Armor reduces physical hit damage. It is less effective against big hits and more effective against small hits.

Flat damage reduction (e.g., “−X Physical Damage Taken”) is subtracted before armor.

Example:

Enemy hits for 1,000 Physical

You have 100 flat reduction → 900

Your armor reduces the hit by 30% → Final = 630 damage

Step 7: “Damage Taken As” Conversions
These are defensive conversions that shift damage types after resistances:

E.g., "30% of Cold Damage Taken as Fire" shifts Cold damage to Fire.

Happens after base conversion and resistance calculation, but before final multipliers.

This allows players to redirect damage to more manageable types.

Step 8: Final Damage Multipliers
These include:

“X% less damage taken”

“Y% of damage taken is recouped as life/mana”

“Reduced Damage Taken From Critical Strikes”

“Damage Taken Over Time Multiplier” (for DOTs)

These modifiers apply after all reductions and conversions but before the damage is applied.

Step 9: Mitigation Buffs or Triggers
If you have a buff, guard skill, or reactive defense, it will absorb some of the hit:

Molten Shell, Immortal Call, Bone Barrier

These apply only if already active (or cheap POE 2 Chaos Orbs trigger instantly, if automated).