LP is just Token A (A) multiplied by Token B (B) to equal a Constant (K). So A * B = K.

08 Feb 2022, 22:50

LP is just Token A (A) multiplied by Token B (B) to equal a Constant (K) So A * B = K When you buy Token A using Token B, what are you doing? You are taking A out of the pool and putting B into the pool. For as much Token A as you take out, a corresponding amount of Token B must be put in to make sure K is ALWAYS constant. This is where price impact comes into play. If I have 10 of A and 10 of B, then K is 100. If I want to buy 5 of A, how much B do I need to use? Well if I buy 5 A, then 5 A remains in the pool. 5 * B = 100. So B is 20. This is an Inverse relationship. You must understand this at a CORE FUNDAMENTAL MATH LEVEL to get how the math breaks when I explain the rest. The math for price is Pooled BUSD / Pooled Guard The math for LP is Pooled BUSD * Pooled Guard SO what do we do when we Base Case and Chill? Well, we take HALF of the money we want to stake and BUY GUARD. Lets use $100 as an example. So $50 in Guard comes out, $50 of BUSD goes in in proportion. K Remains Constant. Then we take the other $50 of the BUSD we have and pair it with the $50 of GUARD we just bought and put it back in the pool. The math BREAKS here. Guard goes back in, as if it never left, and $50 of additional BUSD goes in, including the original $50 of BUSD that entered the pool when you bought the GUARD. So the pool now has the same GUARD as before you bought, but an additional $100 that wasnt there before. The formula went from being A * B = K where K is a constant to now K being a variable that increases every time someone Base Cases Because A (BUSD) increased in quantity, but B (Guard) stayed the same. So K has to naturally go up in value. With an increase in K, the pool becomes more stable and more liquid. The higher the K value, with even distribution of quantities of A and B, the less price impact and the more stability. Also Because POOLED BUSD is always increasing in value while POOLED GUARD is pretty much staying the same or decreasing (for those who buy and dont pair)... And since the equation for price is POOLED BUSD divided by POOLED GUARD. Then the Price goes up predictably and stably, while also reducing the price impact of new people wanting to enter the ecosystem since the availability of POOLED GUARD is always pretty steady, but the density of POOLED BUSD prevents buy buyers from scooping up massive chunks of GUARD.

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GuardianGUARD #3769

08 Feb 2022, 23:35

Here's the FUN: Same scenario, if an LP has 10 of GUARD and 10 of BUSD, then K is 100 If I buy 5 Guard, how much BUSD did I use? Well, 5 * B = 100, so B is 20, so 10 BUSD became 20 BUSD. Therefore I used 10 BUSD to buy 5 GUARD. What is the new price of GUARD? Well, Pooled BUSD / POOLED GUARD is price, so 20 / 5 = $4 Guard is now $4, I have 5 of them, so the value of my GUARD is $20. I spent $10 to buy it. Now I go to PAIR my GUARD in the pool. I need to supply the 5 GUARD worth $20 and now an additional $20 in BUSD. So now the pool has 10 GUARD AGAIN, but now it has 40 BUSD instead of 10. The new FLOOR price of GUARD in the pool is now $4, because $40 in BUSD divided by 10 GUARD. The new K Value is now 400, not 100 So now when someone comes to buy GUARD, K is 400. So if someone new came and bought 5 GUARD, how much do they spend? Well, 5 GUARD in POOL * B = 400 B was 40 before, but now B is 80. So they need to spend $40 to buy the 5 GUARD instead of the $10 from before. Make sense?

Here's the FUN:. Same scenario, if an LP has 10 of GUARD and 10 of BUSD, then K is 100.