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StableSwap - efficient mechanism for Static Coin trading

The StableSwap whitepaper introduces a specialized automated market maker (AMM) algorithm designed specifically for assets that maintain stable relative values,

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Abstract

The StableSwap whitepaper introduces a specialized automated market maker (AMM) algorithm designed specifically for assets that maintain stable relative values, such as fiat-pegged stablecoins. Unlike traditional Constant Product Market Makers (like Uniswap’s x*y=k) which exhibit high slippage when trading assets with low volatility, StableSwap utilizes a hybrid invariant. This invariant combines the properties of the Constant Product formula and the Constant Sum formula to minimize price impact during large trades between stable assets. The document details the mathematical model behind the ‘Amplification Coefficient’ (A), a parameter that allows liquidity pools to behave more like a constant sum when assets are in equilibrium, thereby enabling significantly lower slippage compared to existing models. The significance of this paper lies in its contribution to the efficiency of stablecoin liquidity, effectively reducing the cost of arbitrage and enabling more stable pegs across decentralized finance. By optimizing for assets with zero or low volatility, the mechanism set the stage for highly efficient cross-asset trading, which has become a foundational component of modern DeFi liquidity infrastructure. Authors: Michael Egorov Publication: Project Whitepaper Publication date: 2019-01-01

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Key findings

  • Standard Constant Product AMMs are inefficient for assets with stable exchange rates due to high slippage.
  • The hybrid StableSwap invariant achieves significantly lower slippage for stable-valued assets by adjusting to market equilibrium.
  • The Amplification Coefficient is a key tunable parameter that modulates the trade-off between slippage and liquidity stability.
  • Large volume trades of stable assets can be executed with minimal price impact using this specialized curve.
  • The mechanism significantly enhances the utility of liquidity pools for institutional or large-scale trading of stablecoins.

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Citation

Michael Egorov (2019). StableSwap - efficient mechanism for Static Coin trading. Project Whitepaper. https://curve.fi/files/stableswap-paper.pdf
Canonical knowledge ID: research:stableswap-efficient-mechanism-for-static-coin-trading