> ## Documentation Index
> Fetch the complete documentation index at: https://rivrdex.io/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# AMM mechanism

> How RivrDEX prices trades using the constant product formula — no order book required.

RivrDEX is an **automated market maker (AMM)**. Instead of matching buyers and sellers through an order book, an AMM uses a mathematical formula to set prices based on the ratio of tokens held in a liquidity pool.

## How an AMM works

Every trading pair on RivrDEX has a **liquidity pool** — a smart contract holding reserves of two tokens (call them X and Y). The price of each token is determined entirely by how much of each token is in the pool at any moment.

When you swap token X for token Y:

1. You deposit X into the pool.
2. The pool releases Y to you.
3. The ratio of X to Y shifts, which changes the price.

No counterparty is required. The contract itself is always the other side of the trade.

## The constant product formula

RivrDEX uses the same formula that Uniswap v2 pioneered, adapted for Vara Network's WASM runtime:

```text theme={null}
# Constant product formula
x * y = k

# After swap of dx for dy:
(x + dx) * (y - dy) = k
dy = y - k / (x + dx)
```

* `x` — reserve of token X in the pool
* `y` — reserve of token Y in the pool
* `k` — a constant that must hold before and after every trade
* `dx` — amount of token X you send in
* `dy` — amount of token Y you receive

The product `x * y` must always equal `k`. This means the pool can never be fully drained of either token — the price of the scarcer token rises asymptotically as supply falls.

## Price impact

The larger your trade relative to the pool's total liquidity, the more you shift the token ratio — and the worse your effective price becomes. This is called **price impact**.

<Info>
  A trade that is 1% of the pool's reserves will have noticeably worse pricing than a trade that is 0.1%. For large trades, consider splitting your order into smaller chunks.
</Info>

## Slippage

Between the time you submit a transaction and the time it is executed on-chain, other trades may occur and shift the price. The difference between your expected price and the executed price is **slippage**.

You can set a **slippage tolerance** in the RivrDEX interface. If the price moves beyond your tolerance before your transaction is included, the swap will revert rather than fill at an unfavorable rate.

<Tip>
  For volatile or low-liquidity pairs, increase your slippage tolerance slightly. For stable, deep pools, a tight tolerance (0.1–0.5%) is usually sufficient.
</Tip>

## Price impact vs. slippage

| Concept      | Cause                                                          | When it happens                                                    |
| ------------ | -------------------------------------------------------------- | ------------------------------------------------------------------ |
| Price impact | Your trade size relative to pool depth                         | Always — built into the formula                                    |
| Slippage     | Other trades moving the price between submission and execution | Only when the chain is active between your submit and confirmation |

Both reduce the amount of token Y you receive. Price impact is predictable and visible before you confirm; slippage is not.

## Comparison to Uniswap v2

RivrDEX's AMM logic is directly inspired by Uniswap v2. The core formula and pool mechanics are equivalent. The key difference is execution environment: RivrDEX runs on **Vara Network** using Gear smart contracts compiled to WASM, rather than the EVM. This enables near-gasless transactions and Vara's actor-model message passing — but the trading math is the same.