Supplying Float in special circumstances
We’ll now go into the more complex ways to use Zircon, involving its Async liquidity provision modes.
On the add liquidity screen, you will find a Swap and Add option.
Unlike the default reserve-based method, this will supply your liquidity as a 50/50 mix of tokens. This is how the AMM accepts assets in the pool, and combined with the Pylon, this method unlocks an interesting mechanic.
Because of Pylon’s internal accounting, your resulting portfolio will be either 100% in Float or 100% in Stable. You can imagine that this method makes a virtual swap that instantly changes your portfolio to either the token represented by Float or the token represented by the Stable vault, without any slippage.
This is a good way to enter Pylon pools in size. But if you supply too much into one particular side, the Pylon vaults will be imbalanced. You will be paying a higher fee at that point.
The same works for exiting the pools, via a Swap & Exit mechanism. Just like entering pools, this is the best choice when removing a large position.
When a Float vault is imbalanced, it will have either a High or Negative Divergence. The first means that if you join the vault, your position isn’t what you’d expect.
The Float and Stable vaults calculate virtual quantities of the tokens they represent. Even if the underlying AMM pool has 50 ETH, the Float vault may think it has 75 ETH because it’s also counting some of the tokens from the other side as its own.
With High Divergence, the Float underlying position will be strongly diluted, which means that its LPs will suffer impermanent loss. You’ll have less upside exposure, but also less downside exposure if the token dumps.
When the Float vault has Negative Divergence, it means that the Stable vault has too much power, so the protocol incentivizes new Float LPs to supply liquidity by offering them a larger piece of the fees.
Joining Float vaults with Negative Divergence can be rewarding. The impermanent loss you’re suffering is negative, which means that you might actually make more money if the token goes up in price. But beware that this will usually happen because the asset represented by the Float vault is falling in price!