How Does the Bonding Curve of an AMM Affect Impermanent Loss?

The bonding curve, typically x y = k, dictates the ratio of assets in the pool and thus how much the price moves for a given trade size. A flatter or more complex curve, such as those used for stablecoins, can reduce price impact and therefore lessen impermanent loss for LPs within a certain range.

The shape of the curve directly determines the severity of the asset ratio change as the price diverges.