Depth-Adjusted Pricing

Depth-Adjusted Pricing is a model where the cost of a trade is calculated based on the available liquidity at different price levels. Rather than using a single market price, this approach accounts for the fact that large orders will consume multiple levels of the order book, resulting in an average price that is worse than the current quote.

This model is often used by automated market makers to provide a more accurate reflection of the cost of execution. It protects the protocol from being exploited by large orders that could otherwise drain liquidity at an artificially low price.

By pricing in the impact of the order size, the system encourages more sustainable trading behavior. It is a key feature of advanced decentralized finance derivative platforms.