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Constant Product Automated Market Maker: On Rootstock
- The Constant Product Automated Market Maker is a fundamental idea in the decentralized finance (DeFi) ecosystem that ensures that the product of the two tokens in the pool remains constant.
- The constant product formula ensures that the product of the quantities of two tokens in the pool remains constant and prevents the price from being easily manipulated through large trades.
- The Constant AMM works on the following equation: x * y = k, where x represents the quantity of Token A in the liquidity pool, y represents the quantity of Token B in the liquidity pool, and k is a constant value that remains unchanged during swaps until liquidity is added or removed.
- There are three key functions in the Constant Product Automated Market Maker contract: addLiquidity, removeLiquidity, and swap. The addLiquidity function allows a user to deposit two tokens into the pool, ensuring their ratio remains consistent with the existing reserves and mints liquidity provider (LP) tokens based on the user's share.
- The removeLiquidity function allows a user to withdraw their share of liquidity from the pool and calculates the amounts of token0 and token1 to return, while the swap function allows users to exchange one token for another in the liquidity pool by calculating the output amount using the constant product formula with a 0.3% fee.
- The Constant Product AMM contract is deployed using Hardhat on the RSK network using deployment scripts, and it is a decentralized way to trade tokens using a straightforward mathematical formula, ensuring ongoing liquidity and a seamless trading experience without the need for traditional market makers.
- This tutorial on Constant Product Automated Market Maker explained how to create a constant product contract, understood the underlying mathematics, and learned how to deploy it on the RSK network using Hardhat and deployment scripts.
- If you have any questions or wish to contribute, please feel free to open a pull request, report issues, and explore the repository. Happy coding!
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