Module 6 · Ethereum & Shared Applications / 6.9
Different pools, different jobs.
Why one exchange formula is not ideal for every pair of assets.
A shop selling two unpredictable collectibles has a different inventory problem from a desk exchanging two claims on the same currency.
AMMs have evolved in the same way. The important difference is not the version number. It is the assumption each design makes about the assets and where trading will happen.
Start with the assumption.
A constant-product pool can quote across a wide range of relative prices. As one reserve becomes very small, its price rises sharply. That flexibility can leave much of the deposited capital far from where most trades occur.
A stable-swap design aims to offer lower price impact near an expected exchange ratio for similar-value assets. Curve’s StableSwap blends behavior near that ratio with a more protective curve as the pool becomes imbalanced.
The assumption is crucial. Two dollar-targeting tokens can stop being equally valuable. Traders may remove the stronger asset and leave providers holding more of the weaker one. A stable-swap curve cannot guarantee the assets’ backing or restore a broken peg.
A weighted pool uses target weights that need not be 50/50 and can include more than two assets. Balancer’s weighted design generalizes the invariant. An 80/20 pool has different exposure and price behavior from a 50/50 pool; the weight is not a promised return.
Quote across a broad price range; inventory makes each additional unit dearer.
Conceptual shapes, not numerical quotes. Curves show reserve tradeoffs; the range view shows where liquidity is active.
Put the inventory where trades happen.
Concentrated liquidity lets a provider choose a price interval. Instead of spreading a position over nearly every possible price, the provider places it where they expect trading.
This can make the same capital support deeper trading inside that interval. It also adds a boundary. When the price leaves the interval, the position becomes entirely one asset and stops earning swap fees until it is active again.
A narrow range does not mean “more fees with no tradeoff.” It can become inactive quickly, require management, and create different inventory exposure. Moving the range can involve transactions, costs, and realizing a changed asset mix.
Concentrated liquidity is primarily about where liquidity is allocated. It is not simply a fifth unrelated magic pricing formula. Uniswap v3 introduced it as a native feature; v4 retains it.
Inside the interval: this position can supply active liquidity and earn applicable swap fees.
Illustrative range. Exact boundary behavior uses protocol ticks and position direction. Market risk continues while inactive.
The pool itself can become programmable.
In Uniswap v4, optional hooks are contracts that can run around pool actions, such as swaps or liquidity changes. They can support designs like dynamic fees or custom accounting.
Customization means two pools using the same protocol version can behave differently. A familiar exchange name is not enough to tell you the permissions, fees, or security assumptions of a particular hook.
Other AMM families use different curves, external price inputs, or dynamic parameters. This course gives you a map of the major ideas, not a claim that one list exhausts every design.
The progression is useful: a general exchange rule, curves for special relationships, choices about where to concentrate inventory, and additional programmable behavior. These designs coexist. A new version does not automatically upgrade an old pool or make it the best fit for every trader.
The idea to keep
Ask what a pool assumes, where its liquidity is useful, and what happens when those assumptions fail. A lower quoted price impact is only one part of the comparison.