AMM pool adjustments

Butter.xyz implements two forms of AMM pool adjustments: k adjustments and repegs. The purpose of both kinds of adjustments is to keep market prices in line with spot prices.

K adjustments

K adjustments increase or decrease the amount of assets in the pool while preserving the price. When mark prices are persistently divergent from spot prices and there are not enough traders in the market to bring them back in line, k should be decreased. On the other hand, if there are traders who would like to enter positions but are dissuaded by high slippage, k should be increased.

Butter.xyz performs k adjustments automatically after each funding event and may perform k adjustments manually when desirable.

Automatic k adjustments

After each funding event, if the fee pool increased during the funding period, k is increased. K is increased with up to 20% of the fee pool change, or by 0.5%, whichever is lower.

Conversely, if the feel pool decreased during the funding period, k is decreased. k is decreased with up to 65% of the feel pool change, or by 1.5%, whichever is higher.

When there is low open interest in a market, we may not perform automatic k adjustments.

Repegs

When the mark price for a market diverges from the index price by more than 5% for an extended amount of time, Butter.xyz may adjust the ratio of assets in the pool to bring the mark price in line with the index price. This process is known as repegging.

Please note that repegs are performed at the determination of Butter.xyz.