What Is the Difference between a Constant Product and a Stable Swap AMM?
The Constant Product Market Maker (CPMM), like Uniswap V2, maintains a constant product (x y=k) for two assets, which results in significant slippage for large trades. The Stable Swap AMM, like Curve, is designed for assets that should trade near parity (e.g. stablecoins).
It uses a different bonding curve to offer much lower slippage and higher capital efficiency for stable asset pairs.
Glossar
Constant Product Market Maker
Formula ⎊ The Constant Product Market Maker model enforces a specific mathematical relationship, typically $x y = k$, where $x$ and $y$ represent the reserves of two assets in a pool, and $k$ is the invariant constant that must be maintained before fees are applied.
Stable Swap Amm
Architecture ⎊ ⎊ Stable Swap AMMs represent a specialized automated market maker design prioritizing minimal price impact for trades of assets expected to maintain a stable value relative to each other, diverging from the constant product formula of traditional AMMs.
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to capital at risk, a metric increasingly vital given regulatory constraints and market volatility.
Stable Asset
AssetAttribute ⎊ A Stable Asset is a digital currency designed to maintain a relatively constant market value, typically pegged to a fiat currency or a basket of stable commodities, minimizing volatility.
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.
Stable Swap
Mechanism ⎊ The StableSwap protocol, initially conceived by Curve Finance, represents a novel automated market maker (AMM) design diverging from the traditional constant product model.