Mediawiki at 18:51, 8 December 2025

2025-12-08T18:51:51Z

← Older revision		Revision as of 20:51, 8 December 2025
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	1 SPRING = 1 POL		1 SPRING = 1 POL
	~~'''~~3. Buying SPRING With POL~~'''~~

			==3. Buying SPRING With POL==

	Let’s say a user buys:		Let’s say a user buys:

Mediawiki: Created page with "=Example: Automated Market Making (AMM) Using Polygon and the Spring Token= Automated Market Makers (AMMs) such as Uniswap do not use an order book. Instead, the price is determined entirely by the liquidity pool. This page shows a simple example using Polygon (POL) and the Spring token (SPRING) to illustrate how the price changes when you buy or sell. The goal is to show that: When you '''buy''' Spring, you pay a price slightly '''higher''' than the listed price. Whe..."

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Created page with "=Example: Automated Market Making (AMM) Using Polygon and the Spring Token= Automated Market Makers (AMMs) such as Uniswap do not use an order book. Instead, the price is determined entirely by the liquidity pool. This page shows a simple example using Polygon (POL) and the Spring token (SPRING) to illustrate how the price changes when you buy or sell. The goal is to show that: When you '''buy''' Spring, you pay a price slightly '''higher''' than the listed price. Whe..."

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=Example: Automated Market Making (AMM) Using Polygon and the Spring Token=

Automated Market Makers (AMMs) such as Uniswap do not use an order book.
Instead, the price is determined entirely by the liquidity pool.
This page shows a simple example using Polygon (POL) and the Spring token (SPRING) to illustrate how the price changes when you buy or sell.

The goal is to show that:

When you '''buy''' Spring, you pay a price slightly '''higher''' than the listed price.
When you '''sell''' Spring, you receive a price slightly '''lower''' than the listed price.

This difference is called '''slippage''', and it happens automatically because of the AMM formula.

==1. The Constant Product Formula==

AMMs maintain a constant value:

'''x × y = k'''

Where:

''x'' = amount of POL in the pool
''y'' = amount of SPRING in the pool
''k'' = constant value that does not change

The listed price shown in the interface is only the spot price, calculated as:

'''Price = POL in the pool ÷ SPRING in the pool'''

But the moment you make a purchase or a sale, the pool balances shift, and the price moves.

==2. Example Pool==

For this example, suppose the liquidity pool contains:

10 000 POL
10 000 SPRING

So the listed (spot) price in the interface is:

1 SPRING = 1 POL
'''3. Buying SPRING With POL'''

Let’s say a user buys:

1 000 POL worth of SPRING

Before the purchase:

x = 10 000
y = 10 000
k = 100 000 000

The user adds 1 000 POL to the pool:

New x = 11 000

We must keep x × y = k, so:

y = k ÷ x
y = 100 000 000 ÷ 11 000
y ≈ 9 090.90

This means the pool must end with:

9 090.90 SPRING

So the user receives:

10 000 − 9 090.90 = 909.10 SPRING

'''Effective price paid'''

The user spent 1 000 POL and received 909.10 SPRING.

Effective price = 1 000 / 909.10 ≈ 1.10 POL per SPRING

Even though the listed price was 1, the user paid 1.10.

This is because the buy order pushed the price upward as the pool balances changed.

==4. Selling SPRING for POL==

Now suppose a user sells:

1 000 SPRING to the pool

Before the sale:

x = 10 000
y = 10 000
k = 100 000 000

After the user adds 1 000 SPRING:

New y = 11 000

To keep x × y = k:

x = k ÷ y
x = 100 000 000 ÷ 11 000
x ≈ 9 090.90 POL

So the user receives:

10 000 − 9 090.90 = 909.10 POL

'''Effective price received'''

The user sold 1 000 SPRING and received 909.10 POL.

Effective price = 909.10 / 1 000 = 0.909 POL per SPRING

Even though the listed price was 1, the user received only 0.909.

This is because selling pushes the price downward.

==5. Why Does This Happen?==

AMMs do not allow traders to buy or sell at the exact spot price unless their trade is extremely small relative to the pool.

Every trade changes the pool ratios:

Buying SPRING ↑ increases POL in the pool → decreases SPRING in the pool → price rises
Selling SPRING ↓ increases SPRING in the pool → decreases POL in the pool → price falls

This is not a fee or a penalty.
It is simply how the AMM formula works.

==6. Summary==

'''You never trade at the listed price.'''
Small trades have very little price impact.
Large trades move the price significantly.
Bigger liquidity pools = less slippage.

AMMs reward liquidity providers for taking the opposite side of trades, and this mechanism keeps markets running without order books.

AMM Example - Revision history

Mediawiki at 18:51, 8 December 2025