How Do Arbitrageurs Profit from the Price Difference Caused by the X Y=k Formula? ▴ Learn

How Do Arbitrageurs Profit from the Price Difference Caused by the X Y=k Formula?

Arbitrageurs monitor the price ratio in the AMM pool and compare it to the price on external exchanges. If the price of Token A is lower in the pool than on an external exchange, they buy Token A from the pool and sell it on the exchange for a profit.

This buying pressure on Token A in the pool increases its price there. They continue this process until the price ratio in the pool aligns with the external market price, thus bringing the pool back into equilibrium.

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