The Slippage Ratio: A New Metric to Understand Curve.fi’s AMM Protocol

Figure 1. Weekly DEX Volume Market Share
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  1. It’s flexible i.e., the constant-product invariant is a special case of the StableSwap invariant
  2. It enables a dramatic reduction in slippage under normal circumstances i.e., when the price is close to par
  3. It’s inherently stabilizing. In order to drive prices below par, traders would have to actively sell the parity token into the AMM. For example, when A=20, 85% of the liquidity pool has to consist of the parity token to drive prices down to 80%.
  1. The slippage can be much higher than a constant-product invariant if the pair price deviates significantly from par
  2. As mentioned above, the market value weights need to vary in order to drive prices above or below par. This means that larger trades need to be executed in order to maintain a no-arbitrage equilibrium. As fewer players are able to trade in larger sizes, the StableSwap AMM might be prone to longer-lasting market dislocations. In other words, the AMM price might deviate from off-chain prices for a longer period of time.

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Creative Director at PandiFi

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Creative Director at PandiFi

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