Stable Pools Explained

Asset pools maintaining consistent pricing are referred to as stable pools. The DonutSwap V2 stable pools operate on principles derived from solidly-based mathematics. Within the core framework of DonutSwap, there is an integrated dual-liquidity model. This model accommodates both types of pools: stable pools containing assets that have a correlation with each other, and volatile pools consisting of assets that are not correlated.

The key characteristic of stable pools is their ability to focus a significant portion of their liquidity at the prevailing market prices, leading to a more effective utilization of resources. During trading activities, these pools have the capability to modify their pricing. This adjustment aims to shift the region of highest liquidity, thereby maintaining the pool's balance without leading to financial losses.

In stable swap mechanisms, the primary objective is to maintain a swap ratio as close to 1:1 as feasible, until such a point where adhering to this ratio becomes untenable. At this juncture, the system transitions to an XYK curve model. For the swap ratio to deviate significantly from 1:1, the disparity in liquidity ratios must be substantially more marked than in a typical XYK curve scenario.

Participating as a liquidity provider in a stable pool follows the same procedure as in a volatile pool. When you contribute as a liquidity provider to a stable pool, you become exposed to the various assets within that pool, and this also involves assuming certain risks.

Calculations are used to maintain the liquidity of the pool at all times using mathematical formulas

• x is the amount of the first asset in the pool

• y is the amount of the second asset in the pool

• k is a fixed value

An illustration of how the stable purple and volatile orange AMM pricing calculations compare is presented below. It shows: