Constant Sum Formula

The constant sum formula is a pricing mechanism where the sum of the quantities of assets in a liquidity pool remains constant. This creates a linear price curve, meaning the price of the asset does not change regardless of the trade size.

While this offers zero slippage for trades within the pool's capacity, it is susceptible to being drained entirely if the market price deviates from the pool price. Because of this extreme risk, it is rarely used in isolation for volatile assets.

It is most effective for assets that are pegged to each other, such as different stablecoins. The formula ensures that the pool is highly efficient for trades that do not change the underlying value ratio.

It is a specialized tool in the decentralized finance toolbox. When combined with other models, it can enhance liquidity for stable pairs.