Automated Market Maker Pricing Curves

Automated Market Maker pricing curves are mathematical formulas that determine the exchange rate between two assets in a liquidity pool. The most common model is the constant product formula, which maintains that the product of the reserves of two assets must remain constant during a trade.

This mechanism allows for decentralized price discovery without the need for a centralized intermediary or an order book. As a trade occurs, the pool automatically adjusts the price based on the remaining reserves to ensure the pool is never fully depleted.

Different protocols may use variations of these curves, such as concentrated liquidity models, to improve capital efficiency and reduce slippage for traders. These curves are the backbone of decentralized exchange architecture, dictating how assets are valued and swapped within the protocol.