What Is a Common Alternative AMM Formula Used to Reduce Impermanent Loss for Stablecoin Pairs?

The most common alternative is the StableSwap invariant, often represented by a combination of constant product and constant sum formulas. This formula is designed to maintain a nearly constant price ratio (close to 1:1) with very low slippage for assets that are expected to trade at a similar price, like stablecoins.

It allows for much deeper liquidity around the peg, significantly reducing impermanent loss as long as the peg holds. If the peg breaks, the impermanent loss can be much higher than a standard AMM.