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About AMM and Seesaw Calculator
An Automated Market Maker (AMM) is a type of decentralized exchange (DEX) protocol that uses mathematical formulas to price assets. Instead of using order books like traditional exchanges, assets are priced by a pricing algorithm. One of the most popular AMM models is Uniswap's constant product formula: x * y = k.
This seesaw calculator uses an AMM to adjust the prices and quantities of ETH and GBX. The initial pool consists of 10 ETH and 40,000 GBX, and this formula ensures that the product of the assets remains constant.
Let's Explain Simply
To make it easier to understand AMM, let's compare it to a seesaw. Imagine one end of the seesaw has ETH and the other end has GBX. To keep the seesaw balanced, the weights on both sides must be equal. AMM creates rules to maintain the balance of the seesaw. If more ETH is added to one end, the AMM adjusts the quantity of GBX on the other end to keep the seesaw balanced. This way, the seesaw always maintains balance, adjusting the prices and quantities of ETH and GBX as they fluctuate.