Uniswap

[Richa-iitr]

• "constant product" market making formula
• Selling ETH for ERC20 tokens --> increases the size of the ETH reserve and decreases the size of the ERC20 reserve --> shifts the reserve ratio, increasing the ERC20 token's price relative to ETH for subsequent transactions.
• Limit Order: traders can specify the minimum amount bought on sell orders or the max amount sold on buy orders --> limti order --> automatically cancels if not fulfilled.
• Transaction deadlines: cancel orders if they are not executed fast enough.
• Only one exchange per token can be registered
• Factory contract: can be used to create exchange contracts for any ERC20 token that does not already have one.
• separate exchange contract for each ERC20 token --> hold reserves of both ETH and their associated ERC20.

[Richa-iitr]

Concentrated Liquidity

• For a pair of tokens X,Y, where we measure price of token X in terms of Y.
• When providing liquidity for this pair, an LP chooses a price range [𝑝𝑎, 𝑝𝑏] in which they would like to provide liquidity.
• Together with the current price 𝑝, this determines the ratio of the two tokens the LP needs to deposit.
• The exact amounts of both tokens the LP decides to deposit then determines the amount of liquidity 𝐿 provided to the interval.
• When a trade occurs, current price of the pool moves.
• All LPs earn a portion of the trading fees proportional to the amount of liquidity they provided to the interval by which the price moved.
• If the price moves outside the chosen range of an LP, the position consists of only one of the two tokens and stops earning fees.
• Once the price returns to the range, the position earns fees again.
• Finding real amount of tokens from virtual ones.