What Is VerdexSwap

VerdexSwap is a decentralized exchange (DEX) protocol built on Arbitrum. Unlike every major DEX that came before it, VerdexSwap is engineered around a single conviction: liquidity providers should not be silently punished for participating.

Every time a trader swaps on a traditional DEX, liquidity providers earn a fee. But they also silently absorb something that erodes far more than those fees can ever recover: impermanent loss. This is the financial gap between what an LP deposited and what they receive when they withdraw, caused by price movements during the time their capital was locked inside a pool. On Uniswap, Curve, SushiSwap, and every other AMM without a solution to this problem, LP capital is structurally disadvantaged. Providers are rewarded in the short run and drained in the long run.

VerdexSwap solves this at the protocol level with a system called IL Shield: an on-chain insurance mechanism funded by swap fees and voluntary capital stakers. It does not require a token to be printed, a promise to be made, or a governance vote to be passed. The math enforcing it is well researched.

The Three-Tier Pool System

Not all trading pairs carry the same risk. A stablecoin-to-stablecoin pool almost never sees meaningful price divergence. An ETH/USDC pool sees moderate price swings. A newly launched token paired with ETH can swing 50% in a day. Treating all three identically would either over-charge stable LP providers or under-protect volatile ones.

VerdexSwap solves this with three distinct pool tiers, each configured with its own fee structure and maximum coverage ceiling.

Stable Tier

Designed for pairs where both tokens maintain a peg or near-peg relationship — USDC/USDT, DAI/USDC, and similar combinations.

Total fee per swap: 0.10%

Breakdown of that fee: 0.05% stays inside the pool as LP rewards 0.03% is routed to the IL Shield Vault 0.02% is routed to the protocol treasury

Maximum IL coverage: 15% of the LP's impermanent loss

Rationale: Stable pairs generate very little impermanent loss. The 15% ceiling reflects this reality. The fee is intentionally low to attract high-volume, low-margin stable trading.

BlueChip Tier

Designed for liquid, established tokens with deep market history — ETH, BTC, and similar assets paired against each other or against stablecoins.

Total fee per swap: 0.35%

Breakdown of that fee: 0.20% stays inside the pool as LP rewards 0.10% is routed to the IL Shield Vault 0.05% is routed to the protocol treasury

Maximum IL coverage: 50% of the LP's impermanent loss

Rationale: Blue chip assets experience meaningful price swings but their historical behavior is well-understood. 50% coverage gives LPs a real safety net without over-promising on assets that carry genuine price volatility.

Volatile Tier

Designed for newer, smaller-cap, or higher-risk token pairs where price divergence can be severe.

Total fee per swap: 0.55%

Breakdown of that fee: 0.30% stays inside the pool as LP rewards 0.15% is routed to the IL Shield Vault 0.10% is routed to the protocol treasury

Maximum IL coverage: 75% of the LP's impermanent loss

Rationale: Volatile pools generate the most impermanent loss. The higher swap fee compensates LPs more aggressively, and the higher vault allocation builds a larger cushion against the greater expected IL liability.


How Tiers Are Assigned

When a new pool is created, the Factory automatically determines its tier by checking both token addresses against a curated whitelist. If both tokens are registered as stablecoins, the pool is Stable. If either token is a registered blue chip asset, the pool is BlueChip. Everything else defaults to Volatile. The protocol administrator can override any pool's tier at any time if circumstances change, for example when a token matures from Volatile to BlueChip status.

The IL Shield System

This is the defining feature of VerdexSwap. It is not a marketing claim. It is a set of on-chain contracts that enforce real payouts from a real fund.

How Coverage Is Calculated

When an LP exits and is owed an IL payout, the vault runs through a multi-step calculation. The final payout is always the minimum of three independent caps, ensuring the vault never pays out more than it can sustain.

Step 1 — Time Saturation

The CoverageCurve calculates how much of the tier's maximum coverage ceiling the user has earned based on time in the pool. Coverage accrues according to an exponential saturation curve, meaning most of the coverage is earned in the first 60 days, and the curve flattens thereafter. This design rewards genuine long-term providers and makes the coverage economically unattractive for short-term mercenary capital.

Coverage accrual schedule (as a percentage of the pool tier's ceiling): After 7 days: 11.0% of ceiling After 30 days: 39.4% of ceiling After 60 days: 63.2% of ceiling After 90 days: 77.7% of ceiling After 120 days: 86.5% of ceiling After 150 days: 91.8% of ceiling After 180 days: 95.0% of ceiling After 210 days: 97.0% of ceiling After 240 days: 98.0% of ceiling (maximum cap)

For context, an LP in a Volatile pool (75% ceiling) who stays for 90 days is eligible for coverage of up to 77.7% of 75% = 58.3% of their impermanent loss, before vault health adjustments.

Step 2 — Vault Health Multiplier

Even within the time-earned coverage, payouts scale with how well-funded the vault is relative to its total outstanding liability. If the vault holds at least 1.5 times its estimated total IL exposure, it operates at 100% health and no reduction is applied. Below that threshold, the coverage scales down linearly and proportionally. This means coverage is mathematically tied to vault solvency and cannot be over-promised.

Step 3 — Three-Way Cap Enforcement

The actual USDC payout the user receives is the minimum of: The coverage percentage applied to their impermanent loss 20% of the current USDC value of their withdrawn liquidity (per-user protection cap) 5% of the total USDC reserve in the vault (per-event pool protection cap)

These caps stack. A user cannot receive more than 20% of their exit value, and no single payout event can drain more than 5% of the pool fund. This prevents any single large withdrawal from destabilizing the vault.

Step 4 — Circuit Breakers

If the vault's historical payout utilization (total ever paid out relative to total ever received) reaches 50%, coverage for new payouts is automatically halved. If utilization reaches 80%, the shield pauses entirely for that pool until reserves recover. LPs can still withdraw their tokens — the shield pause does not lock anyone in.

The Staker Model

Anyone can deposit USDC into a pool's vault as a voluntary insurance seller. Stakers earn income from swap fees in exchange for backing IL payouts with their capital. This is analogous to the underwriting model in traditional insurance.

Stakers receive 50% of the vault fee collected from swaps (converted to USDC via the FeeConverter). The other 50% builds up the direct payout reserve.

Stakers cannot withdraw instantly. They must first submit a withdrawal request, then wait 14 days before the exit is processed. This cooldown is a direct engineering response to the Bancor collapse of 2022, where instant exits during market stress created a bank run dynamic. On VerdexSwap, the vault capital cannot evaporate mid-crisis.

When a payout is processed and the fee reserve is insufficient to cover it, staker capital absorbs the remainder proportionally. Each staker's share reflects this, meaning their exit value may be lower than their entry value in stressed conditions; just as a traditional insurer bears underwriting losses. This aligns incentives correctly: stakers are rewarded for supporting healthy pools and take losses on pools they mis-price.