Copy of Complete Example Token Side AMM
About this model
This diagram models a decentralized finance (DeFi) liquidity pool and automated market maker (AMM) system, specifically focusing on the mechanisms by which cryptocurrency and tokens interact within the liquidity pool and how trading, staking, and liquidity management activities impact the financial state of the system. It captures a variety of operations such as adding and removing liquidity, buying tokens with cryptocurrency and vice versa, and calculating token price based on existing liquidity and market dynamics. The system also incorporates elements for handling transactions fees and rewards, showcasing how resources flow between different pools like "Token," "Crypto," "Token Rewards," and "Tokens in Circulation" through a combination of source, drain, pool, and gate nodes, assisted by registers computing critical values like token prices and liquidity adjustments.
Registers within the model calculate the outcomes of transactions and liquidity events using formulas that take into account the current state of the pools (e.g., total amount of tokens and cryptocurrency), the transaction sizes, and predefined commission rates. These calculations dynamically influence the "constant number (k)" representing the product of the liquidity pool's token and crypto reserves, which is a key invariant in AMM designs aimed at ensuring liquidity and price stability. This computational graph not only demonstrates the fluid exchange of assets within a DeFi ecosystem but also highlights the considerations for maintaining balanced liquidity and the role of transaction fees in rewarding liquidity providers while facilitating trade and staking activities within the system.
"Copy of Complete Example Token Side AMM" is a public Machinations diagram shared in the Community by Fernando Asensio Muñoz, with 114 components.
It was created in April 2024 and last edited in April 2024.
Open the diagram in the Machinations app and press Play to watch the resources move, adjust its values to test how the system responds, or remix it to make an editable copy in My diagrams.
