Risks, how to calculate them and solutions
TLDR below. This is not financial advice.
Season 1 is for the foundations of economics design, token economics and token engineering. The fun stuff comes now in Season 2!
Catch the episode on YouTube
Everyone talks about risks in AMM and DEXes but no one tells you how to calculate. Sure, there are online spreadsheet being shared around, but how do you trust that. In this episode, we talk about the risks when using AMM to trade and risks that exist even if you are not trading your liquidity tokens in AMM.
1. About AMM
With so many episodes on AMM, you would think that I am done talking about it. Nope, there is so much more to uncover! But I’ll switch to other topics soon, so we get a balanced education on the various DeFi mechanisms in place!
AMM is a method to allow for tokens to trade between each other. We use the model called invariant, which is a constant, to facilitate the trade.
Watch this video for the math mechanism behind it: