# How Virtual Pools Work

A Virtual Pool can be composed from two native AMM pools if they share one common asset, and also if at least one of the pools accepts the non-common asset from the other pool as a reserve.

For example, if native pairs between A-B and B-C exist, and the A-B pool can accept C as a reserve token, a virtual pool A-C can be created, capable of performing C-A trades.

To reflect the [VirtuSwap Whitepaper ](https://virtuswap.io/docs/whitepaper.pdf)nomenclature, the first of the two pools composing the Virtual Pool is called *jkPool* or *Active Pool* and the second pool is called *ikPool* or *Reference Pool.*

When a swap occurs, the Active Pool (A-B in the example above) performs the actual exchange of the tokens by accepting a certain amount of token C to its reserves, and paying out a corresponding amount of token A. The Reference Pool (B-C in the example) is used for constructing a virtual AMM curve between A and C, which is used to calculate the amount of A that should be swapped for a given amount of C.

The liquidity in the Virtual Pool is calculated as follows:

$$
LiqA\_V = LiqA\_{AB}\*\frac{MIN(LiqB\_{AB}, LiqB\_{BC})}{LiqB\_{AB}}
$$

$$
LiqC\_V = LiqC\_{BC}\*\frac{MIN(LiqB\_{AB}, LiqB\_{BC})}{LiqB\_{BC}}
$$

As can seen from the formulas above, the total value of the two balances of the Virtual Pool equals the TVL of the smaller one of the two pools.

After a swap is completed, the Active Pool A-B ends up with a lower amount of Token A and a corresponding amount of C in reserves. Since token B is not participating in the swap, the pool's imbalance (and thus arbitrage opportunity) is much lower than in the case of a regular trade. The reserve token C is to be exchanged at a later point in time for A or B with other pools in the system.