How Is the Price of Assets Maintained within an Automated Market Maker (AMM) Pool?
The price is maintained by a constant function formula, such as x · y = k, where x and y are the quantities of the two assets in the pool, and k is a constant. When a trader buys one asset, they reduce its supply and increase the other's, which algorithmically adjusts the price ratio to reflect the trade.
Glossar
External Price Alignment
Calibration ⎊ External Price Alignment within cryptocurrency derivatives signifies the process of ensuring a derivative’s theoretical valuation accurately reflects the underlying spot market price, accounting for factors like funding rates and implied volatility.
Automated Market Maker
Architecture ⎊ Automated Market Makers (AMMs) represent a paradigm shift in decentralized exchange (DEX) design, moving away from traditional order book models to a constant function market mechanism.