Many people think AMMs (automated market makers) are simple, but this is where mistakes are easy to make:
Uniswap V2 uses the x × y = k model: ignoring fees, the product of the quantities of the two tokens in the liquidity pool remains constant before and after a swap.
The deeper the pool, the smaller the price impact of a trade of the same size. This is what people mean when they say, “the more liquidity, the lower the cost.”
For tokens with shallow liquidity pools, check the estimated price impact before making a large buy or sell, and consider splitting it into several trades.
$UNI is the governance token of Uniswap, which popularized AMMs. Currently: 7.146.
Uniswap V2 uses the x × y = k model: ignoring fees, the product of the quantities of the two tokens in the liquidity pool remains constant before and after a swap.
The deeper the pool, the smaller the price impact of a trade of the same size. This is what people mean when they say, “the more liquidity, the lower the cost.”
For tokens with shallow liquidity pools, check the estimated price impact before making a large buy or sell, and consider splitting it into several trades.
$UNI is the governance token of Uniswap, which popularized AMMs. Currently: 7.146.