What Is the ‘K’ in the Formula, and Why Is It Essential to the Pool’s Function?

'k' represents the constant product of the reserves (x and y) in the pool. It is a mathematical invariant that ensures the pool can always provide liquidity, regardless of the trade size.

It defines the shape of the bonding curve. 'k' is essential because it guarantees that a trade, by changing x and y, will always result in a new ratio that still satisfies the constant product, thus determining the new price.