What Role Does the “K” Constant Play in Determining the Pool’s Total Liquidity Value?
The constant $k$ represents the product of the reserves ($x cdot y$) and is a direct measure of the pool's depth or total liquidity. A larger $k$ indicates a deeper pool with more assets.
A deeper pool can absorb larger trades with less price impact (lower slippage). When new liquidity is added, the value of $k$ increases, and when liquidity is removed, $k$ decreases, reflecting the change in the pool's capacity to facilitate trades.
