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Why Is a Constant Sum Market Maker Vulnerable to Full Depletion of One Asset?

The fixed x + y = k ratio allows arbitrageurs to buy the cheaper asset until its reserve is fully depleted.
Greeks.Live20.11.25

Why Is a Constant Sum Market Maker Vulnerable to Full Depletion of One Asset?

The Constant Sum formula, x + y = k, maintains a near 1:1 price ratio regardless of the reserve levels. If the external price of one asset drops significantly, arbitrageurs can continuously buy the cheaper asset from the pool at the fixed 1:1 ratio and sell it on an external market.

This process continues until the pool's reserve of the cheaper asset is completely exhausted, as the formula does not dynamically adjust the price to prevent depletion.

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