Q & A

How does the automated market making formula: x*y=k that was invented by Hayden Adams and employed by Uniswap work?

DeFi / Hiturunk Oct 16, 2020 1 Answer

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An automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets.


Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm. This formula can vary with each protocol.


Uniswap uses x * y = k


where:

  • x is the amount of one token in the liquidity pool,

  • y is the amount of the other token in the liquidity pool,

  • k is a fixed constant.


Uniswap use a constant product market maker algorithm that makes sure that the product of the quantities of the 2 supplied tokens always remains the same. 

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