How Does a “Constant Sum Market Maker” (CSMM) Attempt to Minimize Slippage for Stablecoin Pairs?
A Constant Sum Market Maker (CSMM) uses the formula x + y = k, where the sum of the reserves remains constant. This model is ideal for assets that are expected to trade near a 1:1 ratio, such as stablecoins.
Because the curve is linear, it allows for large trades with minimal price impact (low slippage) as long as the reserves are relatively balanced. This is a significant improvement over the Constant Product model for highly correlated assets.
Glossar
Minimize Slippage
Definition ⎊ Slippage refers to the difference between the expected price of a trade and the actual price at which the order is executed.
Constant Sum Market Maker (CSMM)
Algorithm ⎊ The Constant Sum Market Maker (CSMM) algorithm is a specific type of automated market maker used in decentralized finance, primarily for stablecoin pairs.
Constant Product Model
Algorithm ⎊ The Constant Product Model is the seminal algorithm for Automated Market Makers, defining the relationship between two asset reserves, $x$ and $y$, such that their product remains constant, $x cdot y = K$.
Csmm
Framework ⎊ The term CSMM, within cryptocurrency derivatives and options trading, typically refers to a Collateralized Synthetic Market Maker.
Constant Sum Market Maker
Framework ⎊ A Constant Sum Market Maker (CSMM) represents a novel approach to automated market making, particularly relevant within cryptocurrency derivatives and options trading, designed to maintain a predetermined balance between bid and ask liquidity provision.