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