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MARKET SYSTEMS · COURSE 001

AMM: Who Quotes Without a Counterparty?

Start with a pool that has no order book. Move reserves, execute swaps, become an LP, and watch the constant-product rule turn inventory into a quote.

4 lessonsabout 58 minbeginner friendly
Start lesson oneOpen sandbox ↗
COURSE EXAMPLEWithout an order book, who quotes the next trade?

Split a pool into reserves, curve, trader, and LP, then watch a rule replace manual matching.

PARTICIPANTS
  • PoolPool: quotes continuously
  • TraderTrader: trades size for immediacy
  • LPLP: earns fees
  • ArbArbitrageur: reconnects outside prices
COURSE OUTLINE

One question per lesson

The lessons are ordered so that each one uses concepts introduced earlier.

  1. 01
    RESERVES · CURVE

    Without an Order Book, the Pool Is the Counterparty

    KEY QUESTIONWith no posted seller, why can a pool keep trading with me?

    Use one swap to see how reserves move, where impact comes from, and why LPs provide depth.

    ReservesConstant productSlippageLP
    34 MIN
    →
  2. 02
    IMPACT · SLIPPAGE · DEPTH

    Why Does the Quote Get Worse?

    KEY QUESTIONIf fees fall to zero, does a large trade stop slipping?

    Walk the curve with three sizes and separate spot price, average execution, impact, and fee.

    Spot priceExecution pricePrice impactSlippage protection
    13 MIN
    →
  3. 03
    LP · FEES · INVENTORY

    Where Do LP Fees Come From?

    KEY QUESTIONLPs earn every trade fee. How can they still underperform holding?

    Become an LP, watch fees stay in the pool, and see how trade direction changes the inventory you own.

    LP sharesFee incomeInventory riskHold baseline
    15 MIN
    →
  4. 04
    ARBITRAGE · PRICE GAP · IL

    When Outside Prices Move, Who Arbitrages?

    KEY QUESTIONWho actually pays an AMM arbitrageur’s profit?

    Move the outside reference, let an arbitrageur pull the pool quote back, and inspect LP inventory risk.

    ArbitrageExternal pricePrice gapImpermanent loss
    14 MIN
    →
WHAT IT COVERS

Questions covered in this course

01

How does x·y=k turn two reserves into a quote?

02

Why do large trades face larger price impact?

03

How do fees grow k and become LP income?

04

Why does an LP's asset mix change after swaps?

05

How does arbitrage move reserves when outside prices change?