# Volatility Vaults ### Quick overview In a DEX[^1], 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](/overview/what-is-smardex/inside-smardex-algorithm.md#amms-and-the-k-constant-equation)). 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](/smardex-defi-platform/farming.md)). ### Introducing Volatility Vaults SmarDex stands out as a DEX[^1] for one particular reason: it is the first to have found a real solution to the [Impermanent Loss](#user-content-fn-2)[^2] problem that plagues DeFi. Indeed, after two years of research, the SmarDex team has developed an algorithm capable of reducing [Impermanent Loss](#user-content-fn-2)[^2] 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](#user-content-fn-2)[^2] than on any other existing DEXs[^1], including the famous Uniswap. You might even achieve [Impermanent Gain](#user-content-fn-3)[^3] 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](/smardex-technology/whitepaper.md) ## How to Add Liquidity ### **1. Navigate to Liquidity Tab**

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

Select your wallet from the list and connect it

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

### 4. Open a 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'

If required, do the same operation for the second token. ### 8. Add liquidity

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](/smardex-defi-platform/farming.md#how-to-use-smardex-protocol-farms). ## 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

The next step is to farm your **Volatility Vault LP tokens**. More information in the next section. [^1]: **DEX (Decentralized Exchange):** A type of cryptocurrency exchange that operates on a decentralized network, allowing users to trade digital assets directly with each other without the need for intermediaries. DEXs provide increased privacy, control over funds, and greater resistance to censorship compared to centralized exchanges. [^2]: **Impermanent Loss (IL):** A DeFi phenomenon referring to a change in the price of tokens compared to when a market participant deposited those tokens in the pool. [^3]: **Impermanent Gain (IG):** A potential gain, as theorized by SmarDex, that can be achieved by managing liquidity differently. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.smardex.io/smardex-defi-platform/volatility-vaults.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.