StableSwap — efficient mechanism for Stablecoin liquidity

The problem the paper names

A constant-product pool of two stablecoins quotes a meaningful spread even when both claim to be worth the same unit. That spread is a tax on the common case. A constant-sum pool quotes no spread and then goes bankrupt in inventory the moment the peg slips.

What the design proposes

• An amplification parameter blends a constant-sum region with a constant-product tail.
• The pool is for assets that share a unit of account, not for unrelated volatile pairs.
• The invariant is explicit. Changing the amplification changes the risk, and the paper treats it as a parameter with consequences.

How the mechanism is specified

• Near parity, a trader moves along a nearly flat price. Liquidity is concentrated where those traders are.
• Far from parity, the curve steepens so the pool does not sell the last of the stronger asset at the peg price.
• Later Curve gauges, voting and factory pools are not this note.

What this page does not treat as proven

• The math assumes the assets ought to be near parity. If that assumption is false, the flat region is a source of loss, not efficiency.
• Amplification is a risk setting. Higher is not 'better'.
• The paper is not a claim about any stablecoin's reserves.

Why a venture studio still reads it

This is the first document we ask for when a venture designs a pool of assets 'that should be worth the same'. If they cannot say what happens when the assets stop being worth the same, they have not finished the design.