AMM Trading Curve Dynamics

Trading curves define the relationship between the price of an asset and the quantity available in a pool. While the constant product formula creates a hyperbola, other designs use different curves to improve capital efficiency.

Some curves are designed to be flatter near the current market price, allowing for larger trades with less slippage. Others are designed to accommodate specific asset types, such as pegged assets that rarely deviate from a 1:1 ratio.

Understanding these dynamics is essential for developers designing new financial primitives. The curve determines the fundamental trade-off between slippage and liquidity requirements.

It is the geometric expression of the protocol's market-making strategy.