What Constant Product Means

Every time you trade on a Uniswap-style DEX, one rule governs the price you get: the product of the two token reserves must stay constant.

If a pool holds 10,000 of your token and 50 ETH, the product is 500,000. That number does not change. Every trade adjusts both reserves, but their product stays at 500,000 (before fees).

This single rule prices every trade automatically. No order books, no market makers, no human intervention.

How It Sets Your Launch Price

When you create a liquidity pool, you deposit both tokens at a specific ratio. That ratio sets the opening price.

If you deposit 1,000,000 tokens and 10 ETH, the implied price is 10 ETH / 1,000,000 tokens = 0.00001 ETH per token. The constant product rule locks in that starting point and governs every price movement from there.

How Trades Move the Price

Say a buyer sends 1 ETH into the pool above. The pool now has 11 ETH. To keep the product constant at 10,000,000 (1,000,000 x 10), the token reserve must drop to 909,090. The buyer receives 90,910 tokens, and the new price is now 11 ETH / 909,090 tokens.

That price movement happened with no human input. The formula did it automatically.

Why Pool Size Changes Everything

The same 1 ETH trade against a pool with 10 ETH moves the price significantly. Against a pool with 1,000 ETH, the same trade barely moves it at all.

This is why founders obsess over liquidity at launch. More liquidity means smaller price impact per trade, which means less slippage for buyers, which makes the launch feel stable rather than volatile.

Go Deeper

• Constant Product Formula (x * y = k): the exact math, worked examples, and how k changes over time
• Constant Product AMM: how the pool mechanism works end to end, including arbitrage and price alignment

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