Pool Models

The Auto Market Maker (AMM) serves as the core mechanism behind Liquidity Pools. Unlike Oracles, which rely on external sources for pricing, AMMs use algorithms to determine prices within the pools. Liquidity Pools can be divided into two main categories:

Volatile Pools:

These pools consist of assets that are not correlated in terms of price. For example, Bitcoin (BTC) and Ethereum (ETH). The price of ETH does not have any relation to the price of BTC. This relationship is described by the equation: x * y = k Here, the variable "k" represents the constant balance of assets that determines the price of tokens within the liquidity pool.

Stable Pools:

Stable Pools contain assets that are highly correlated with each other, such as USDC/USDT or USDT/DAI. The prices of these assets remain relatively stable against each other. The price in Stable Pools is determined using the equation: x³y + y³x ≥ k