Volatile Pools

*the Volatile Pool is forked from the Balancer v3 Weighted Pool

Overview

Volatile Pools are an extension of the classical AMM pools popularized by Uniswap v1. Volatile Pools use Weighted Math, which makes them great for general cases, including tokens that don't necessarily have any price correlation (ex. DAI/WETH). Unlike pools in other AMMs that only provide 50/50 weightings, Volatile Pools enable users to build pools with more than two tokens and custom weights, such as pools with 80/20 or 60/20/20 weights.

Info

HyperChonk pools are limited at the Vault level to 8 tokens, and Standard Volatile Pools support any token count up to this limit. Volatile Pools have additional security constraints based on Balancer v3 Weighted Math. (These are the same as in Balancer v2.)

• The minimum token weight is 1%

• Weights must sum to 100%

• Swaps amounts cannot exceed 30% of the token balance

• The invariant cannot decrease below 70% or increase beyond 300% on liquidity operations

• The swap fee must be between 0.001% and 10%. (Note that the lower limit is higher than in v2.)

Note that the swap fee and invariant limits are defined in WeightedPool through implementing the ISwapFeePercentageBounds and IUnbalancedLiquidityInvariantRatioBounds interfaces, which are included in IBasePool.

Advantages

Exposure Control

Volatile Pools allow users to choose their levels of exposure to certain assets while still maintaining the ability to provide liquidity. The higher a token's weight in a pool, the less impermanent loss it will experience in the event of a price surge.

For example, if a user wants to provide liquidity for WBTC and WETH, they can choose the weight that most aligns with their strategy. A pool more heavily favoring WBTC implies they expect bigger gains for WBTC, while a pool more heavily favoring WETH implies bigger gains for WETH. An evenly balanced pool is a good choice for assets whose value is expected to remain proportional in the long run.

Impermanent Loss

Impermanent Loss is the difference in value between holding a set of assets and providing liquidity for those same assets.

For pools that heavily weight one token over another, there is far less impermanent loss, but this doesn't come for free: very asymmetric pools do have higher slippage on swaps, due to the fact that one side has much less liquidity. 80/20 pools have emerged as a happy medium, combining optimistic liquidity provision with Impermanent Loss mitigation.