What Are the Advantages and Disadvantages of Using a Constant Sum Formula versus a Constant Product Formula in an AMM? ▴ Learn

What Are the Advantages and Disadvantages of Using a Constant Sum Formula versus a Constant Product Formula in an AMM?

The constant product formula (x y=k) offers continuous liquidity but suffers from high slippage for large trades. The constant sum formula (x+y=k) allows for zero-slippage trades, which is ideal for stablecoins, but it can be easily drained of one asset if the peg breaks.

This makes it unsuitable for volatile assets. Hybrid models, like Curve's StableSwap, combine these formulas to offer low slippage for stable assets while maintaining liquidity for a wider range of prices.

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