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# How AMM works

UniswapV2's AMM is "Constant Product Market Maker" that calculates price based on a formula

`x * y = k`

. where `x`

and `y`

are amount of each token reserved in a pool. When trader want to swap `dx`

for `dy`

, `y_out`

is calculated according to below function.
(Note that `dx = - x_in`

, `dy = y_in`

because trader adds `dx`

and removes `dy`

to the pool)When a pool stakes pooled ETH and if

`x_0`

represents actual reserve of ETH, the bonding curve collapses because `k`

decreases pro rata amount of staked ETH. To prevent this, we allow `x_0`

to count amount of staked ETH so that the bonding curve doesn't change at all. This approach does not lose any amount of ETH under the assumption that LSD does not collapse.Last modified 8mo ago