# Protocol Overview

AMM is an innovative trading mechanism that evolved from order book-based DEXs to change the way we trade cryptocurrencies on-chain. Instead of buy/sell order books, liquidity pools created by liquidity providers allow traders to trade freely, and liquidity providers share any generated transaction fees as revenue in proportion to their individual liquidity contributions. In addition, any holder of KCT (Klaytn Compatible Token) can become a liquidity provider.

The AMM mechanism of KLAYswap is based on the formula **x \* y = k** where x = KLAY, y = KCT , and k = Constant Function. The token price range is set according to the quantity of each token when the corresponding liquidity pool is created. For example, if the liquidity supply of x (KLAY) increases, the supply of y (KCT) decreases to maintain the constant function, k. In this way, the supply of each token in the liquidity pool is designed to fluctuate with prices set accordingly.

**PARTICIPANTS:**

In other words, KLAYswap is an instant swap protocol that operates with an on-chain liquidity pool, where liquidity is guaranteed by automated market-making (AMM) mechanisms. It is an on-chain swap service that allows anyone that has any KLAY or KCT-type cryptocurrency to become a liquidity provider and earn income from transaction fee commissions.

* **Liquidity Providers:** You can provide liquidity by matching KLAY-KCT pairs with the token contracts created in KLAYswap's Pool Menu. If providing liquidity, you will receive a Liquidity Provider (LP) token as a supply certificate. You will receive a reward share of the fees from that respective pool as a contribution reward. 
* **Traders:** Tokens listed in the protocol can be traded with KLAY or KCT within the scope of the respective pool. The transaction price is based on the existent number of pairs of the respective tokens. 

\*Note that slippage (a difference in the estimated price at the point of transaction and the actual price at time of transaction) may occur in AMM-based swap protocols. In addition, a liquidity provider may experience Impermanent Loss (change in price of deposited assets compared to when they are deposited) as token prices in pools are adjusted by an AMM mechanism after the point of supply.

Please keep these risks in mind when providing liquidity or conducting transactions.<br>


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