How Does Adding Liquidity to a Pool Affect Its Resistance to Price Manipulation?
Adding liquidity increases the total value of k in the x · y = k formula, making the price curve flatter. A flatter curve means that a larger trade (more capital injection) is required to cause the same magnitude of price change.
Therefore, deeper liquidity significantly increases the cost of a flash loan price manipulation attack, making the pool and any dependent oracle more secure.
Glossar
Adding Liquidity
Inflow ⎊ The provision of liquidity, within cryptocurrency markets and derivative instruments, fundamentally addresses the challenge of insufficient depth, particularly in nascent or volatile assets.
Resistance
Threshold ⎊ The concept of resistance, within cryptocurrency derivatives and options trading, fundamentally represents a price level where selling pressure historically outweighs buying interest, impeding further upward price movement.