What is Virtual Price in a dynamic pool?
Virtual price is a measure of how much value is in the pool compared to what was deposited. It is determined by dividing the dynamic pool's total value by the number of LP tokens (VP = pool_value / LP token).
The dynamic pool's value rises as a result of a swap fee being charged on each trade or when assets loaned out to lending pools (via dynamic vaults) generate lending yield. This increase in pool value corresponds to a rise in the Virtual Price.
If virtual price = 1 then the pool value is equal to all deposited assets and the pool has made no money.
If virtual price > 1 that means the pool has accumulated value/assets from fees outside of deposits. e.g. if the virtual price is 1.5, it means that the value grew 50% larger than the deposited assets and the price of your LP token is worth 1.5 times the initial deposit.
If the virtual price is less than 1, it means the pool has lost value compared to its deposits.
For example, when you deposit USDT and USDC in a USDT/USDC stablecoin pool, the USDT-USDC LP tokens you receive represent your share of the pool and 1 USDT-USDC ≈ 1.06866982 USD is the virtual price of the pool.
Note: In the above example, USDT-USDC is the LP token of the pool, not your total USDC and USDT deposited.
The virtual price is not denominated in USD or other currency as that would cause the value to fluctuate even if nothing happened to the pool so would not be a good measure of how much the pool is earning.
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