Explain the Difference between a Constant Product and a Stable-Swap AMM.
A constant product AMM (x y=k) is designed for volatile asset pairs (e.g. ETH/USDC), resulting in high slippage for large trades.
A stable-swap AMM (e.g. Curve) uses a hybrid function that is nearly flat around the peg, designed for low-volatility, pegged assets (e.g. stablecoins).
This design allows for much larger trades with minimal slippage.
Glossar
Stable Hashrate
Predictability ⎊ A stable hashrate ensures consistent block production times on the base layer, which is a critical input for calculating the expected finality of Layer 2 derivative transactions.
Constant Product Component
Component ⎊ The fundamental mathematical element, typically the product of the quantities of two paired assets, $x cdot y = k$, that defines the price curve within a specific Automated Market Maker (AMM) structure common in decentralized cryptocurrency exchanges.
Stable Probability Low Gamma
Characteristic ⎊ Stable Probability Low Gamma describes an options position profile where the likelihood of the option expiring In-the-Money remains relatively constant, and the rate of change of the option's Delta is minimal.
Stable Mining Environment
Characteristic ⎊ A Stable Mining Environment is characterized by high operational uptime, minimal stale share rates, and a consistent, low-variance block discovery performance.
Stable Price Strategy
Objective ⎊ A Stable Price Strategy in derivatives trading is designed to generate returns predicated on the expectation that the underlying cryptocurrency's price will experience minimal movement over a specified period.
Constant Product Invariant K
Constant ⎊ This fundamental mathematical constraint dictates that the product of the reserves in a two-asset pool must remain unchanged before and after any trade execution, excluding fees.
Constant Product Invariant
Mechanism ⎊ The Constant Product Invariant, fundamentally a mathematical relationship, dictates that for two variables, their product remains constant despite fluctuations in individual values; within automated market makers (AMMs), this principle ensures liquidity is continuously available by adjusting asset ratios.
Stable Value Cryptocurrency
Collateralization ⎊ Stable Value Cryptocurrency designs typically rely on over-collateralization, employing mechanisms to maintain a peg to a fiat currency or other stable asset through smart contract enforced reserves.
Stable Interest Rate Environment
Environment ⎊ A stable interest rate environment is characterized by minimal fluctuations in the cost of borrowing and lending capital within a financial system.
Constant Product Vs Sum
Formula ⎊ The constant product formula, $x cdot y = k$, dictates the pricing mechanism for assets within specific Automated Market Makers (AMMs), ensuring the product of the reserves remains invariant during trades.