Two & Tri Pool

Two Pools and Tri Pools are innovative automated market makers (AMMs) tailored for volatile asset pairs. They introduce passive liquidity management with built-in intelligence, automatically adjusting to market conditions to optimize returns and protect liquidity providers (LPs) from unnecessary losses.

Unlike traditional AMMs, these pools focus on efficiency, profitability, and simplicity, making them ideal for DeFi users who prefer a hands-off approach. Forked from Curve's CryptoPools, these pools emphasize concentrated liquidity, dynamic parameters, and risk-aware mechanisms.

Two Pools: Optimized for Dual-Asset Volatility

Two Pools are specialized AMMs designed for pairs of volatile tokens, such as ETH/USDC or BTC/USDT. By concentrating liquidity around the prevailing market price and rebalancing only when it benefits LPs, they achieve superior capital efficiency and reduce the impact of impermanent loss (IL).

Key Features

  • Passive Liquidity Management: Deposit liquidity once and let the pool handle the rest—no manual adjustments or range setting required.

  • Profit-Aware Rebalancing: The pool rebalances only if accumulated trading fees exceed rebalancing costs by at least 2x, ensuring net gains for LPs.

  • Dynamic Fees: Fees adapt in real-time to volatility and pool imbalance, boosting LP earnings during high-demand periods.

  • Capital Efficiency: Liquidity is tightly focused around the current price, leading to lower slippage for traders and higher fee yields per dollar provided.

  • Impermanent Loss Protection: Safeguards prevent rebalancing during unprofitable scenarios, minimizing IL exposure.

How It Works

At its core, a Two Pool uses a sophisticated bonding curve to maintain liquidity. Unlike constant-product AMMs (e.g., Uniswap V2's x*y=k), which spread liquidity infinitely, Two Pools concentrate it in a narrow band around the market price. This is achieved through an amplification factor that tightens the curve.When prices shift:

  • The pool monitors changes via an Exponential Moving Average (EMA) oracle for smooth, manipulation-resistant tracking.

  • Rebalancing triggers only after a minimum price movement (adjustment step) and a strict profitability check: fees earned must cover more than twice the gas and opportunity costs.

  • This "lazy" rebalancing approach, akin to Curve's stablecoin pools but optimized for volatility, ensures LPs aren't penalized by frequent or loss-inducing adjustments.

Traders benefit from deep liquidity in active price ranges, generating more fees that feed back to LPs.

Best Use Cases

  • Volatile Trading Pairs: Perfect for assets like ETH/USDC where price swings are common, providing efficient swaps without excessive IL.

  • Cross-Chain Assets: Handles bridged tokens with inherent volatility, such as wrapped BTC on Ethereum.

  • Governance Tokens: Pairs like protocol tokens with stablecoins, where LPs seek passive exposure.

  • Long-Term Passive Strategies: Suited for holders who want to earn yields without active monitoring, similar to set-it-and-forget-it vaults in other protocols.

Parameters Explained

Parameters allow customization during pool creation, balancing efficiency and risk:

  • A (Amplification Factor): Higher values create a steeper curve, concentrating liquidity more tightly around the price for better efficiency but increased sensitivity to shifts.

  • Gamma: Controls the liquidity drop-off rate away from the center; higher gamma spreads liquidity wider for more stability in volatile markets.

  • Dynamic Fee Range: Starts from a base (e.g., 0.04%) and scales up based on imbalance or volatility, ensuring fair compensation. Kona protocol has a ½ fee share to distirbute into our fee engine.

  • Adjustment Step: A threshold (e.g., 1-5% price change) to prevent over-rebalancing, reducing gas costs and "death by a thousand cuts."

Tri Pools: Extending Efficiency to Three Assets

Tri Pools build on Two Pools by supporting three volatile tokens in a single pool, enabling diversified liquidity provision. This creates a triangular market (A-B, B-C, A-C) with shared liquidity, reducing correlation risks while inheriting the same protective mechanisms.

Key Features

  • Three-Token Diversification: Distributes exposure across three assets, lowering overall risk compared to dual pairs.

  • Passive Management: Fully automated, with no need for manual intervention across multiple pairs.

  • Profit-Aware Rebalancing: Same 2x fee-to-cost threshold applies, protecting against unprofitable multi-dimensional shifts.

  • Dynamic Fees: Adjusts fees across all pairs based on collective pool state, optimizing for complex trading routes. Kona protocol has a ½ fee share to distirbute into our fee engine.

  • Capital Efficiency: Concentrated liquidity supports all three pairs simultaneously, maximizing fee capture from arbitrage and direct trades.

How It Works

A Tri Pool operates as a unified AMM for three tokens, allowing seamless swaps between any pair. Liquidity is managed in a three-dimensional space:

  • Trades route through the most efficient path, earning fees from multiple streams.

  • Rebalancing monitors EMA prices for all pairs; it activates only on significant shifts and when profitability is confirmed.

  • This design draws from multi-asset pools in protocols like Balancer but adds volatility-specific protections, ensuring balanced exposure without overexposure to one asset.

The result is a diversified position that earns from broader market activity while minimizing IL through smart delays.

Best Use Cases

  • Stablecoin Triangles: E.g., USDC/USDT/DAI, providing deep liquidity for pegged assets with minor fluctuations.

  • Ecosystem Tokens: Combinations like a protocol token + ETH + stablecoin for balanced DeFi exposure.

  • Multi-Asset Strategies: Ideal for thematic baskets, such as DeFi blue-chips, with passive yield farming.

  • High-Volume Routes: Token triangles with frequent arbitrage, amplifying fee generation.

Parameters Explained

Tri Pools share the same framework but extend it to three dimensions:

  • A (Amplification Factor): Governs overall concentration in the multi-asset curve.

  • Gamma: Manages how liquidity fades across the three-token space, allowing fine-tuning for correlation.

  • Dynamic Fee System: Multiplies adjustments based on pair-specific imbalances.

  • Adjustment Step: Applies per pair, ensuring holistic pool stability.

Advantages Over Traditional AMMs

These pools outperform legacy designs by combining passivity with intelligence.

Compared to Constant-Product AMMs (x*y=k)

  • Liquidity Distribution: Focused around market price vs. infinite spread, reducing idle capital.

  • Capital Efficiency: High yields per dollar vs. low utilization.

  • Rebalancing: Profit-driven vs. continuous passive IL accumulation.

  • Fee Generation: Dynamic and optimized vs. static rates.

  • LP Experience: Truly passive and efficient vs. passively inefficient.

Compared to Concentrated Liquidity AMMs (e.g., Uniswap V3)

  • Management: Fully automated vs. requiring active range adjustments.

  • Rebalancing: Automatic and safe vs. manual, with high IL risk if ranges are exited.

  • Complexity: User-friendly vs. steep learning curve.

  • IL Protection: Built-in checks vs. exposed to market exits.

  • Ideal For: Passive LPs vs. active traders/managers.

Understanding Pool States

Pools cycle through states based on market alignment:

  • Balanced State: Liquidity matches current prices—optimal for trading, maximum fees, and efficiency.

  • Rebalancing State: Activated on price shifts; liquidity repositions only if fees justify the cost, maintaining post-rebalance efficiency.

  • Stale Liquidity State: Temporary misalignment during low-volume periods; pool waits for fees to accumulate, avoiding lossy moves. Proper parameter selection (e.g., moderate gamma) minimizes this.

Safety Mechanisms: Protecting LPs

Safety is paramount, with multiple layers inspired by battle-tested DeFi designs:

  • Profitability Check: No rebalance unless fees exceed 2x costs—prevents net losses.

  • EMA Price Oracle: Averages recent prices to resist flash loans, manipulation, or erratic triggers.

  • Adjustment Step: Filters out minor fluctuations, saving gas and reducing churn.

  • Dynamic Fees: Escalate during stress (imbalance or volatility), ensuring LPs are rewarded for risk.

LP Strategy Guide: Maximizing Returns

Best Practices

  • Select the Right Pool: Use Two Pools for simple pairs; Tri Pools for diversification or triangles.

  • Evaluate Assets: Analyze volatility, trading volume, and correlations to predict performance.

  • Monitor Health: Regularly check liquidity alignment, fee accrual vs. TVL, and staleness indicators via dashboards.

  • Adopt a Long-Term View: These pools shine for passive holding; short-term volatility may cause brief inefficiencies, but the system self-corrects profitably.

Risk Considerations

  • Impermanent Loss: Still present but significantly mitigated—pools delay realization until offset by fees.

  • Stale Liquidity: Can occur in extreme volatility; leads to temporary lower yields but is resolved as volume returns.

  • Market Risks: Tied to underlying asset performance; diversify and align with your thesis.

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