Pool Invariant Calculation

Definition ∞ Pool invariant calculation is a mathematical formula used in automated market maker (AMM) decentralized exchanges to maintain a constant product or sum across the assets within a liquidity pool. This invariant ensures that the total value of the assets in the pool remains consistent, even as trades occur and asset ratios change. It dictates the pricing mechanism for swaps and helps to determine the amount of output tokens a user receives for a given input. Accurate invariant calculations are critical for the proper functioning and economic stability of AMMs.
Context ∞ The integrity of pool invariant calculations is a frequent subject in news concerning DeFi security and economic exploits. Vulnerabilities or errors in these calculations can lead to significant losses for liquidity providers or allow attackers to drain pools. Developers constantly refine invariant formulas and conduct audits to prevent such issues, aiming for robust and fair trading environments.