Crypto glossary
Weighted pool (index pool)
A weighted pool is an AMM pool whose tokens have custom weights, such as 80/20, so it behaves like a portfolio that rebalances itself as traders swap.
Standard AMM pools hold two tokens in equal value. Weighted pools, pioneered by Balancer, generalise the constant product formula so that a pool can hold up to eight tokens with any weights, for example 80% of a governance token and 20% ETH. Prices are set by the ratio of reserves adjusted for those weights, and arbitrage trades keep each token's share close to its target.
Because the pool always sells what has risen and buys what has fallen, it acts like an index fund that earns trading fees instead of paying management fees. Projects use 80/20 pools to provide liquidity for their token while keeping most of their exposure, and liquidity bootstrapping pools change the weights over time to run token sales.
A heavier weight on one token reduces impermanent loss for holders of that token but makes the pool shallower on the other side, increasing price impact. Weighted pools still lose value to arbitrageurs when prices move, and multi-token pools are only as safe as their weakest asset.
Example
A project seeds an 80/20 pool with 8 million dollars of its token and 2 million of ETH, letting holders trade the token while the treasury keeps most of its value in its own asset.