Unit 1 · Level 3 · AMMs & DEXes
Unit review: pool smarts
AMMs replace order books with a pot of two tokens priced by x·y=k. The token ratio sets the price; every trade tilts the ratio, so big trades in shallow pools pay heavy price impact. LPs stock the pot, earn a cut of every swap, and pay for it through impermanent loss when prices drift. Fees in, drift out. That's the whole business.
Free to play. No ads, no token, no account needed to start.
What you get asked
Quick check: what sets the price in an AMM pool?
Ratio in, price out. Arbitrageurs keep that ratio honest by trading against any gap with other markets.
A big trade in a shallow pool suffers heavy price ___.
Remember the tiny pool: buying 2 of its 10 ETH cost €2,500 each against a €2,000 spot. Depth decides how much the formula punishes size.
Match the unit's big ideas:
Four ideas, one machine: the formula prices, depth cushions, receipts prove ownership, and drift is the cost of providing.
ETH triples while you LP an ETH/stablecoin pool. What did the pool quietly do?
Arbitrage drains the winner from the pool as it reprices. That's impermanent loss in one sentence: the pool auto-sells what's pumping.
Before LPing into any pool, the smart first question is:
Volume and drift are the whole equation. A giant APY on a pair that's about to diverge is a trap with good marketing. You're now thinking like an LP, not a tourist. 🐜
The rest of this unit
How a pot of tokens and one formula replaced the order book.