Weighted Pool

LPs can deposit assets in non-equal proportions (e.g., 80/20 or 95/5), allowing them to maintain a desired portfolio bias. This is crucial for pools containing a stablecoin paired with a volatile asset, where LPs may want to reduce exposure to impermanent loss by holding more of the stable asset.

Fees are distributed proportionally to an LP's share of the pool, but the weighting influences trading dynamics. A pool with a high weight on a less liquid asset can attract more arbitrage trades against that asset, potentially generating higher fee revenue for LPs providing that specific liquidity.

In pools like 80% stablecoin / 20% volatile asset, the impact of price divergence is significantly dampened for LPs compared to a 50/50 pool. The LP's overall portfolio value is more stable because the majority of their capital is in the non-volatile asset.

Weighted pools excel for highly correlated assets (e.g., different stablecoins or wrapped versions of the same asset). Using a 50/50/50 split for three stablecoins is inefficient. A 33/33/33 weighted pool concentrates liquidity more effectively, allowing the same capital to support larger trades with lower slippage.

Many DeFi protocols and DAOs create weighted pools to bootstrap liquidity for their native token. They often offer additional liquidity mining rewards or governance power to LPs in these pools, providing yield beyond trading fees. An example is a protocol creating a 90/10 pool with its governance token.

Sophisticated LPs can use weighted pools to express a market view. For instance, an LP believing a token is undervalued might provide liquidity in a 95/5 pool, committing a small amount of the speculative asset against a large amount of stablecoin, aiming to accumulate more of the token via fees and arbitrage if its price rises.

Weighted Pools allow liquidity providers (LPs) to customize their capital allocation. For example, an 80/20 ETH/DAI pool concentrates capital on the more volatile asset, which can increase fee revenue for that trading pair but also concentrates impermanent loss (IL) risk. This is a deliberate economic trade-off for pools with assets of differing volatility or expected demand.

The asymmetric weighting amplifies impermanent loss for the token with the higher weight if its price increases significantly relative to the pool's other assets. LPs in an 80/20 pool are more exposed to ETH's price movement than DAI's. This is a fundamental economic consideration that must be modeled by LPs before providing liquidity.

Weighted Pools, especially those with a heavy weight (e.g., 90/10), can be more vulnerable to price manipulation within a single block because less capital defends the weighted asset's price. However, they can also be designed as highly secure on-chain oracles (e.g., Balancer's 80/20 ETH/USDC pools), where the heavily weighted asset provides price stability and the lightweight asset acts as a low-liquidity checkpoint, making manipulation costly.

Fee structures in Weighted Pools must account for the unequal capital allocation. Protocols often take a percentage of swap fees, which are generated disproportionately from the more heavily weighted asset. The economic security of the protocol depends on accurately calculating and collecting these fees without distorting the pool's intended balance or creating arbitrage vulnerabilities.

While Weighted Pools enable novel DeFi products (like index pools or stablecoin pools with a governance token), they introduce integration complexity. Smart contracts interacting with these pools must correctly handle the weighted math for swaps, joins, and exits. Incorrect integration is a security risk that can lead to lost funds or exploited arbitrage.

The weights and swap fee parameters are critical to a pool's security and economic viability. If these are upgradeable, control often rests with protocol governance or the pool creator. Malicious or poorly calibrated parameter changes (e.g., setting a 99/1 weight) can drain liquidity or make the pool unusable, representing a key governance risk.

The pool weight dictates the initial ratio of tokens and significantly impacts impermanent loss (IL).

• A 50/50 pool has symmetrical IL exposure.
• An 80/20 pool exposes the LP more to the price movement of the dominant (80%) asset.
• Holding a higher weight in a more stable asset can reduce potential IL compared to the 50/50 baseline.

A time-weighted pool used for fair token distribution and price discovery during launches. It typically starts with a high weight for the sale token (e.g., 98% SALE / 2% USDC) that gradually decreases over time, allowing market demand to set the price while mitigating front-running and sniping bots.