Pool Operator FAQs

Why doesn't my FXPool rebalance to a 50:50 LP ratio?

FXPools don't need to stay at the 50:50 ratio in order to offer FX rates. In practice, an FXPool facilitates FX accurate trades anywhere between the 24:76 and 74:26 ratios. This conceptually is a different design compared to constant product or constant sum invariants where the market expects the "true price" to be at the 50:50 ratio or elsewhere, however FXPools operate in a range rather than a single point on the price curve.

Will my FXPool rebalance automatically or should I rebalance it manually?

FXPools are designed to amplify arbitrage incentives beyond the beta region (outside the blue region, segments I:H and J:K). This means that the further traders bring the LP ratio beyond the beta region (currently 24:76 or 76:24 at the time of writing), they will be charged a dynamically increasing fee (or "penalty"). However, if a trader brings the LP ratio back towards the beta region, they will be paid a subsidy for helping to rebalance the pool (taken from the pool liquidity). The penalty will always be higher than the subsidy paid, so the pool will always remain solvent while earning increased fees for LPs.

To see this "rebalancing" behavior in action, refer to some historical charts of a few of our FXPools that have been live since the start of 2023.

VCHF:USDC Avalanche LP Ratio Over Time: https://dune.com/xavefinance/vchf-usdc-pool-avalanche

EURC:USDC Avalanche LP Ratio Over Time: https://dune.com/xavefinance/euroc-usdc-pool-avalanche

EURS:USDC Ethereum LP Ratio Over Time: https://dune.com/xavefinance/eurs-usdc-pool-ethereum

This rebalancing mechanic is of course not "magic" nor "instantaneous". The idea is that arbitrageurs will eventually find a profitable opportunity to either buy a token from the FXPool low and sell high elsewhere or vice versa

Should I rebalance my FXPool when it goes beyond the 24:76 and 76:24 ratios?

We generally advise pool operators not to manually rebalance FXPools, unless absolutely required. Rather than manually rebalancing, we advise seeding liquidity between an FXPool and its' external pools to ensure that arbitrageurs are incentivized to carry out this "self rebalancing". As a pool operator, you may also consider running your own arbitrage bot to rebalance an FXPool, but make some money while doing it. This also helps to ensure that your FXPool remains attractive to traders.​​