TRADING & AMMS
Constant Product (Constant Product Formula)
Definition
The constant product formula (x*y=k) is the mathematical model used by AMMs like Uniswap to automatically set prices based on token ratios in liquidity pools.
Example
Example
In a ETH/USDC pool, if you buy ETH, the ETH amount decreases and USDC increases, maintaining the constant product while raising ETH's price.
Risks to Consider
Risks
- Price impact
- Arbitrage opportunities
- Impermanent loss
