What Is the Role of ‘K’ in the AMM Formula and Why Is It Important for Pool Stability?

'k' represents the constant product of the reserves (x and y) and is a measure of the pool's total liquidity. A larger 'k' indicates a deeper pool with more capital.

A larger 'k' is important for stability because it means that a given trade size will have a smaller impact on the token ratio, resulting in less price slippage and making the pool more resistant to large, sudden price swings.