AuroraSwap provides users a simple way to swap tokens on Aurora via automated liquidity pools. In a swap, one token is sold to buy another token. The rate of the swap is determined by the AMM with the equation:
Where x = the number of $AAA tokens, y = the number of $BBB tokens, and k is a constant. The trader is charged a 0.3% fee to make a swap.
Figure 1. Example of a swap on AuroraSwap.
In Figure 1, a trader is swapping $AAA token for $BBB tokens. The trader sends 100 $AAA tokens to the AMM. A 0.3% fee is applied and 0.3 $AAA tokens are not included in the swap. The remaining 99.7 $AAA tokens are swapped in the AMM to $BBB tokens. Since the AMM will be losing $BBB tokens, it must gain $AAA tokens to keep k constant.
The equation:
Can be solved for y to give the number of $BBB tokens that the trader will receive. The 0.3% fee of 0.3 $AAA tokens are directly added to the liquidity pool reserves, slightly increasing the value of k.
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