What Happens to the 'K' Value in the Constant Product Formula When a Trade Occurs? ⎊ Path

What Happens to the ‘K’ Value in the Constant Product Formula When a Trade Occurs?

In the constant product formula (x y = k), the 'k' value represents the pool's total value invariant. When a trade occurs, the 'k' value increases by the amount of the trading fee, which is added to the pool's reserves.

This increase in 'k' benefits the liquidity providers. The core principle of the formula is that the product of the reserves, excluding the fee, must remain constant for the calculation of the trade price.

What Is the Role of the ‘Constant Product Formula’?

What Role Does the “K” Constant Play in the Constant Product Market Maker Formula?

How Does the ‘Constant Sum’ Formula Differ from the ‘Constant Product’ Formula in AMMs?

How Does the Constant Product Formula (X Y=k) Ensure Liquidity Is Always Available, Regardless of Trade Size?

What Are the Limitations of the Constant Product Formula in Terms of Capital Efficiency?

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

How Does the Constant Product Formula (X Y=k) Govern the Price within a Liquidity Pool?

How Would This Formula Change for a Liquidity Pool Governed by a Constant Mean or Constant Sum Formula?

Glossar

Constant Product Formula

Formula ⎊ The Constant Product Formula, a cornerstone of Automated Market Makers (AMMs) like Uniswap, dictates the relationship between the reserves of two tokens within a liquidity pool.

Constant Product

Invariant ⎊ The core principle dictates that the product of the quantities of the two assets in a liquidity pool remains constant, represented mathematically as $x cdot y = k$, where $x$ and $y$ are the reserves of the two tokens.