Constant Function Market Maker (CFMM)

Crypto terminology for Constitutional Governance refers to the specific vocabulary used to understand blockchain systems, rights, and regulations within a constitutional framework. It helps clarify concepts essential for navigating the intersection of cryptocurrency and governance.

A Constant Function Market Maker (CFMM) is a type of decentralized exchange that facilitates trading without needing a traditional order book. Instead, it uses mathematical formulas to determine the price of assets based on supply and demand.CFMMs operate using liquidity pools, where users provide assets in exchange for a share of transaction fees. The most common formula used in these systems is the constant product formula, represented as x * y = k. In this equation, x and y represent the quantities of two assets in the pool, and k is a fixed constant. This relationship ensures that when one asset is traded, its price adjusts automatically based on the remaining quantities.CFMMs allow for continuous trading and can accommodate large volumes without significant price slippage. They are popular in decentralized finance (DeFi) due to their ability to operate without intermediaries, providing users with more control over their trades and lower fees compared to centralized exchanges.

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