What is Constant Product Formula?

A constant product formula is an algorithm used to determine the price of tokens on an automated market maker (AMM) platform. The formula maintains that tokens in a liquidity pool must remain at a fixed relative value. The most well-known formula is x * y = k, pioneered by the Uniswap protocol, which maintains that a pair of tokens in a liquidity pool must remain at equal total values. By fixing the relative value of the tokens, the formula is able to automatically determine pricing.