⚖️Volatility Vaults

Volatility Vaults are simply SmarDex's Intelligent Liquidity Pools

Quick overview

In a DEX, you can play both roles: either trade one cryptocurrency for another (swap), or provide liquidity (by depositing tokens) so that other users can trade.

For such a system to work, a DEX utilizes Liquidity Pools which are made up of pairs of tokens. For instance, if a user wants to trade their ETH for WBTC, then the protocol will deposit the ETH into the ETH-WBTC Liquidity Pool and withdraw WBTC. The price automatically adjusts using a mathematical formula (Click here for more explanation).

Therefore, if a user wants to provide their tokens to the protocol to generate a yield, they must do so in pairs and add this pair of tokens to a Liquidity Pool. For example, if I have ETH and WBTC, then I provide liquidity in the ETH-WBTC Liquidity Pool.

When a user provides liquidity to a Liquidity Pool, they will receive a number of Liquidity Provider tokens (LP tokens) proportional to their share of the Liquidity Pool. If there's a farming campaign available for the Liquidity Pool they've contributed to, then they can farm these tokens and benefit from very attractive yields (more information here).

Introducing Volatility Vaults

SmarDex stands out as a DEX for one particular reason: it is the first to have found a real solution to the Impermanent Loss problem that plagues DeFi. Indeed, after two years of research, the SmarDex team has developed an algorithm capable of reducing Impermanent Loss in 100% of cases. This method is completely automated, based on mathematical principles, and agnostic. In other words, by providing liquidity to SmarDex, you are guaranteed to experience less Impermanent Loss than on any other existing DEXs, including the famous Uniswap. You might even achieve Impermanent Gain depending on the circumstances.

This algorithm is directly integrated into our Liquidity Pools. Thus, we have unique and intelligent Liquidity Pools. That's why we decided to rename them "Volatility Vault".

This name reflects the fact that our Liquidity Pools leverage market volatility. The more volatile the market, the more significant our performance compared to the competition.

Particularity in providing liquidity on SmarDex

The value of the two tokens in USD may not be equal on SmarDex, which differs from other DEXs that typically use a 50/50 USD value split for both tokens. SmarDex's pricing is based on its unique algorithm that uses fictive reserves, which are not directly proportional to the actual reserves in the contract.

This algorithm rebalances the reserves to maintain a favorable Liquidity Pool for liquidity providers. When adding or removing liquidity, the contract's real reserves are used instead of the fictive ones, potentially leading to a discrepancy in the value of the two tokens. For instance, to contribute $2500 worth of tokens, you might need $1500 in ETH and $1000 in WBTC. For more information concerning the functioning of the fictive reserves, please refer to the Whitepaper

How to Add Liquidity

1. Navigate to Liquidity Tab

Liquidity page

2. Connect your web3 wallet (ex. Metamask, Coinbase Wallet, etc.)

Click on 'Connect Wallet'

Select your wallet from the list and connect it

3. Make sure you're on the chain you want to use

You can change chain by clicking here

4. Open a new position

Click on 'New position'

5. Choose the pair of tokens you want to add to the Volatility Vault

(Make sure you have these tokens in your wallet)

Chose the pair of tokens you want to add to the Volatility Vault

6. Chose the amount you want to add to the Volatility Vault

As mentioned earlier, unlike other DEXs where an equal 50/50 contribution is required, at SmarDex, thanks to our algorithm that reduces IL, the token contribution can be unbalanced. For example, to contribute $2500 in liquidity, the distribution might require $1500 in SDEX and $1000 in USDC.

Chose the amount of token you want to add to the Volatility Vault

Quick tip: Knowing the exact amount of each token to add to our Volatility Vaults at any moment can be challenging. That's why, if you have sufficient quantities of both tokens you wish to add, you can utilize our 'Max' buttons to determine the correct amount of tokens to contribute. Here's how: Click the 'Max' button for the first token and check if you can add liquidity. If it indicates 'Balance too low', then click the 'Max' button for the second token, you'll be able to add liquidity. See the example in the images below:

Here are the 'Max' buttons of each tokens

Example of 'Balance too low' when clicking the first 'Max' button

Example of good balance by clicking on the second 'Max' button. You can now add liquidity

7. If required, approve the token smart contract

(For your first interaction with a new token, you have first to approve the connection between your wallet and the token’s smart contract to proceed securely)

Approve the first token by clicking on the 'Approve' button

Set the authorized spending limit for the smart contract and click 'Next'

Approve it on your wallet

If required, do the same operation for the second token.

8. Add liquidity

Click on 'Add Liquidity'

Confirm on your wallet

Your liquidity has been successfully added to the Volatility Vault!

If the Volatility Vault you just added liquidity on has a farming campaign, you can now farm your LP tokens. See how to do that here.

If you've added liquidity to a Volatility Vault and it doesn't appear on the Liquidity Page:

There might be occasions when the front end fails to locate your Vault, possibly due to technical issues or because the vault involves a particularly rare token. If you encounter this, don't worry; you have the option to manually import your vault. Simply follow the steps outlined below:

1. Navigate to Liquidity Tab

No Volatility Vault found on the liquidity page

2. Import a Volatility Vault

Click on 'Import Volatility Vault'

Select the correct tokens

Click on 'Import Liquidity Pool'

Volatility Vault imported successfully

The next step is to farm your Volatility Vault LP tokens. More information in the next section.