AMM & Pool Types

What an AMM actually is

An automated market maker is a pair of token vaults priced by a formula instead of a human order book. Instead of matching a buyer with a seller, a swap reads the current vault balances, applies the curve, and tells you the price you get for whatever amount you put in. The curve is the entire market — there's no off-chain counterparty.

Liquidity providers (LPs) seed both vaults with capital. They collect a cut of every swap (the fee) in proportion to their share of the pool. The more capital sits behind the curve, the smaller a given trade moves the price — which is why "deeper liquidity" matters.

Volatile pools — constant product (x · y = k)

The original Uniswap V2 curve and Topaz's default for uncorrelated pairs. The product of the two vault balances stays constant on every swap (ignoring fees). If a pool holds 100 ETH and 200,000 USDC, then x · y = 20,000,000. Anyone removing 1 ETH must deposit enough USDC to keep that product the same — that's what sets the price.

• ✓Works for any two tokens, regardless of price relationship.
• ✓Predictable: the curve is well-understood and stress-tested across DeFi.
• ✓Higher slippage on large trades — the price moves along a hyperbola.
• ✓LPs feel impermanent loss when prices diverge from the entry ratio.

On Topaz, volatile v2 pools default to a 0.30% swap fee. The fee manager can set a custom rate per pool, up to a 3% maximum.

Stable pools — x³y + y³x ≥ k

For pairs that are supposed to trade at roughly the same price (USDT/USDC, ETH/stETH, BTC/WBTC), the constant-product curve is inefficient — most of the capital sits at prices that will never trade. Topaz's stable pool uses a flatter curve, the same one Solidly and Velodrome introduced: the invariant is x³y + y³x ≥ k.

This curve is much flatter around the 1:1 region and only steepens sharply when prices diverge. The result is low slippage even on large stablecoin swaps, while still pricing meaningfully if a peg breaks.

• ✓Designed for correlated assets — picking stable for an uncorrelated pair would price terribly.
• ✓Default 0.05% swap fee, customizable per pool by the fee manager up to 3%.
• ✓Slightly larger rounding error in K than constant-product — negligible for users, noted here for integrators who track LP token value via K.

Slipstream — concentrated liquidity

Concentrated-liquidity pools let an LP target a specific price range instead of supplying across all possible prices. A USDT/USDC LP who knows the price will almost never leave $0.99 – $1.01 can concentrate all their capital there, earning the fees of a much larger v2 position with a fraction of the dollars at risk.

Topaz's concentrated-liquidity engine is called Slipstream. It is a fork of Aerodrome Slipstream, which itself adapts the Uniswap V3 tick-and-range design. Positions are represented as NFTs, fees accrue per-position, and ranges are bounded by ticks that must align to a pool-specific tick spacing.

See the Concentrated Liquidity primer for ticks, range strategy, and active vs out-of-range positions, or Concentrated Positions for the step-by-step LP flow.

When to pick which

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