How Solana Liquidity Pools Set Prices and Why Depth Affects Swaps
On Solana, swaps can be executed against on-chain liquidity pools holding reserves of two tokens rather than through a traditional order book. These pools are governed by automated market maker programs, with constant-product designs keeping the product of reserves fixed so that prices adjust automatically after each trade. Liquidity providers supply both tokens, earn a share of swap fees, and face impermanent loss when external prices diverge. Price impact depends largely on pool depth, meaning the same trade can move prices far more in a small pool than in a large one. Solana also hosts concentrated, dynamic, and professional market maker designs, and routing software often splits trades across several pools to reduce costs.
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