Virtual Liquidity and Leverage
Pricing depth beyond the pool's real inventory
Virtual balances price trades; actual balances fund payouts. Larger virtual balances make a given trade smaller relative to the curve, reducing its price impact.
Leverage is the virtual-to-actual balance ratio. It creates no borrowing or LP debt. It changes how quickly trades consume real inventory.
A small example
An equal-weight pool holds 1,000 A and 1,000 B. A trader sells 100 A:
| Configuration | Virtual A and B | Approximate B received |
|---|---|---|
| 1× | 1,000 each | 90.91 |
| 10× | 10,000 each | 99.01 |
Both examples start at the same spot price and exclude fees and rounding. Neither pool can pay more than its real 1,000 B.
Depth comes with a trade-off
More depth lets traders exchange more inventory before the quote moves as far. LP exposure changes faster, and the usable price range can narrow.
The ratio is a live quantity
For virtual balance V_i and LP-owned actual balance A_i > 0:
L_i = V_i / A_i
initial V_i ≈ initial A_i × chosen leverage_iSwaps change both balances by token amounts, so the ratio changes. Buying a
token out can raise its leverage. At A_i = 0, leverage is undefined and
that token cannot be paid out.
Proportional deposits and withdrawals scale balances together, subject to rounding. An enabled range manager can also change virtual balances directly.
What the swap formula sees
Selling x units of A for B with fractional weights w_A, w_B, ignoring fees and rounding:
amountOut = V_B × (1 − (V_A / (V_A + x)) ^ (w_A / w_B))Execution also checks real inventory, sell-off limits and minimum output; see Pricing model.
Read Leverage in Coffer pools explained for an introduction.