Day 96/100 : The Constant Product Automated Market Maker (AMM) 🚀
#100DaysOfSolidity 096 DeFi : “Constant Product AMM”
In the ever-evolving world of decentralized finance (DeFi), Automated Market Makers (AMMs) play a pivotal role in enabling liquidity provision and trading. One of the pioneering concepts in this domain is the Constant Product AMM, which forms the foundation for popular decentralized exchanges like Uniswap and SushiSwap. In this installment of the #100DaysOfSolidity series, we’ll dive deep into the workings of the Constant Product AMM, exploring its core principles, mathematical underpinnings, and even providing code snippets to help you understand how it operates.
🧩 Understanding Automated Market Makers (AMMs)
Automated Market Makers (AMMs) are decentralized protocols that facilitate the exchange of assets without the need for traditional order books or intermediaries. They rely on smart contracts to enable users to trade cryptocurrencies directly from their wallets. One of the earliest and most influential AMMs is the Constant Product AMM.
🎯 The Constant Product Formula
At the heart of the Constant Product AMM lies a simple yet elegant mathematical formula: