Find out how to Calculate Token Value Influence of Giant Trades in Decentralized Finance (DeFi) Environments
I’m growing a software to research the influence of enormous trades on token costs inside a Decentralized Change (DEX) atmosphere, particularly on the Polygon community utilizing the Quickswap Router contract as a case research. My purpose is to programmatically estimate the value motion brought on by important transactions.
Situation:
Assume we’re observing the Polygon mempool for transactions directed in the direction of the Quickswap Router contract. We detect a transaction swapping a considerable quantity of a stablecoin (denoted as S) for a token (denoted as R). The transaction particulars are as follows: $34,000 of S is exchanged for R tokens priced at $7.21 every. Ignoring transaction charges, this equates to buying roughly 4,715.67 R tokens.
Goal:
I wish to calculate the post-transaction value of R within the situation the place the liquidity pool’s preliminary state is as follows:
- Liquidity Pool Measurement (Preliminary): 100,000 R and 721,000 S (indicating a 1R = 7.21S or $7.21 value per R token).
- Order Measurement: $34,000 price of S to purchase R.
- Present R Value: $7.21 per R.
Method:
I used the Fixed Product Market Maker (CPMM) mannequin for simplicity, excluding elements like slippage tolerance and buying and selling quantity from the calculation. The method is:
- Calculate the Variety of R Tokens Purchased: Divide the order dimension by the present R value.
- Replace the Liquidity Pool: Subtract the R tokens purchased from the pool and add the S spent.
- Calculate the New Value of R: Decide the brand new value based mostly on the up to date liquidity pool ratio.
Calculation:
After executing the commerce, the liquidity pool is adjusted, and the brand new value of R is calculated. Nevertheless, I am on the lookout for suggestions on this strategy and any options for extra correct or environment friendly strategies to estimate the value influence of enormous trades in DeFi settings.
Does anybody have insights or enhancements to supply on this calculation technique? Any recommendation or different methods can be vastly appreciated.
