On-Chain Market Maker

.. index:: market maker, AMM

.. _market_maker:

On-Chain Market Maker

---

.. warning::

This is example code for learning purposes. Do not use in production without thorough review and testing.

A simple automated market maker (AMM) using the constant product formula (x * y = k).

.. literalinclude:: ../../examples/market_maker/on_chain_market_maker.vy :language: vyper :linenos:

How it works:

1. Owner calls initiate() with initial ETH and tokens, setting the invariant (k = ETH * tokens)
2. Users swap ETH for tokens via ethToTokens()
3. Users swap tokens for ETH via tokensToEth()
4. The invariant is maintained: more ETH in = fewer tokens out

The 0.2% fee (msg.value // 500) on ETH-to-token swaps goes to the liquidity provider.

.. note::

Production AMMs need price oracles, slippage protection, and liquidity management. This example demonstrates the core swap mechanism only.