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

Related Terms

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