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Brandon
@bvalosek
K represents the aggregate liquidity in a way, since it's the amount of X and Y tokens multiplied together Because X*Y has to be the same K before and after a trade, a CPMM can be thought of as a automated market that keeps liquidity the same before and after a trade
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Brandon
@bvalosek
The spot price of an extremely small buy order of Y is the ratio of X/Y The more liquidity (X*Y=K) you have, the larger buy order of Y you can make with an average "price" closer to X/Y Less liquidity = larger price impact / slippage
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Brandon
@bvalosek
This dynamic emerges from having the invariant constraint of a trade be a product (X*Y=K), while the spot price is a ratio (X/Y=quote price) CPMM = infinite liquidity, but price will change as the reserve balances of X and Y change
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