AMM and liquidity pools explained: how decentralized trading works
How an AMM sets a price, why the quote you see is not the price you pay, and why pool depth decides the difference. With worked numbers.
How do you trade a token when there is nobody on the other side waiting to take it? Through an AMM and a liquidity pool.
An AMM (Automated Market Maker) is an algorithm that prices trades with a formula instead of an order book. A liquidity pool is the pair of tokens it draws from. Together they let two people trade without ever meeting, because neither of them trades with a person: both trade with the pool.
If you have swapped one token for another on PancakeSwap or Uniswap, you used both. Knowing how they work answers the question every swap eventually raises: why the number you were quoted and the number you received are not the same.
How an AMM sets a price
A traditional exchange uses an order book. Buyers post what they will pay, sellers post what they will accept, and a trade happens where the two meet. It works well when there are many of both, and badly when there are few, which is most tokens most of the time.
An AMM replaces that with arithmetic. The common model is called constant product, written x * y = k: x is how much of one token the pool holds, y is how much of the other, and k is a number that must come out the same after every trade. Price is not quoted by anyone. It is whatever ratio keeps k intact.
Take a pool holding 100,000 INKY and 100,000 USDT. The two sides are equal, so the price is 1.00 USDT per INKY.
Now buy 1,000 INKY. The pool has to end with 99,000 INKY, and k has to survive, so the USDT side rises to 101,010.10. You paid the difference: 1,010.10 USDT for 1,000 tokens.
That is an average of 1.0101 each, against the 1.00 the screen said. And the pool has moved: the next INKY out now costs 1.0203.
Why the quote and the result are different numbers
Nothing was deducted in that example. There is no fee in it at all. The extra one percent is the price rising while you were buying, and it has a name: price impact.
A quoted price is the price of the next token, not the average of yours. The 1.00 was true, and it was true for exactly one INKY. By the five hundredth the pool was already thinner and the price already higher. Your order does not happen at a price; it walks along the curve, paying a little more at every step, and what you end up with is the average of the whole walk. The average is always a little worse than where it started.
So read the amount, not the price. Before you confirm, a swap screen shows the quantity you will receive. That number already has the walk priced into it. The price on the screen before it is an estimate at an instant, useful for comparing one market to another and not a promise about your particular order. When you want to check whether a trade went as agreed, compare the amount you were shown at confirmation against the amount that arrived. Those two are the pair that should match.
Price impact is not slippage, though the two words get used as one. Price impact is yours: it follows from the pool's balances and the size of your order, and anyone can compute the same figure from public data before you press anything. Slippage is everyone else's: the extra difference when other people's trades land in the same pool between your quote and your execution. Both widen the gap between what you were told and what you got, and only one of them is about you. This is what a slippage tolerance setting is for: it caps how much of the second kind you will accept before the trade is cancelled instead.
Why the same order costs more in one pool than another
The one percent above came from a 1,000-token order against a 100,000-token pool. Order size alone did not cause it. The ratio did.
Total Value Locked (TVL) is the name for the size of that pool: the combined value of both sides. It is the number that decides how much your trade moves the price, which is why it is quoted for every pool on every DEX and why it is worth checking before a large order rather than after it.
A $1,000 trade against a pool holding $1M is a rounding error. The same $1,000 against a pool holding $10,000 is a tenth of the market and moves the price hard. Same order, same day, same token: two different results, decided by the depth on the other side.
This is also why depth matters more than price for a token you intend to leave. A quoted price tells you what one token is worth. Depth tells you whether you can sell a hundred of them at anything close to it.
The INKY/USDT pair on PancakeSwap v2 is the primary public market for INKY, and its depth is visible in real time on GeckoTerminal or DEX Screener.
Who puts the tokens in
The pool is a smart contract, and the tokens in it belong to liquidity providers. They deposit both sides in equal value and receive an LP token standing for their share, which they hand back to withdraw.
What they withdraw is a share of the pool as it is then, not the two amounts they put in. Every trade since has been swapping one side for the other, so the mix has shifted: a pool people bought INKY from holds less INKY and more USDT than it did. When that shift is large, a provider can come out holding less value than if they had simply kept the two tokens in a wallet. That is called impermanent loss, and it concerns providers rather than traders.
One side of the pair is usually a stablecoin, and that is a convenience rather than a rule. With USDT on one side, the pool's ratio reads directly as a dollar price, and nobody has to convert twice to know what a token is worth.
How staking supports pool stability
Staking and liquidity pools do different jobs, and in a well designed ecosystem each makes the other easier.
Staked tokens are locked in a contract, which takes them out of the supply available to sell. Fewer tokens loose in the market means fewer large sell orders arriving at the pool, and a pool that is not being pushed around holds its price steadier.
It runs the other way too. Depth is what makes a long lock reasonable: somebody deciding whether to commit tokens for months is really asking whether the market will still absorb them afterwards.
On Inkryptus, a simplified-custody crypto app on BNB Smart Chain, staking INKY locks it in an on-chain contract, reducing the supply circulating in the public INKY/USDT pool. Learn more about staking.
Frequently asked questions
The price I saw was better than the amount I received. Why?
Because a price and an amount answer different questions. The price shown is the price of the next token traded; your order is many tokens, and each one moves the pool a little, so the average you pay is slightly worse than where the price started. The amount shown before you confirm already includes that, which is why it is the number to read.
What is slippage, and how is it different from price impact?
Price impact is the movement your own order causes as it walks along the pool's curve, and it is computable from public data before you trade. Slippage is the extra difference caused by other people's trades landing between your quote and your execution, which nobody can know in advance. What is slippage in crypto covers tolerance settings and how to reduce it.
A price site quotes a different number than my receipt. Why?
A quote is an estimate for a route at the instant it was asked for, at that size, before any platform fee and before the market moved. It is not a record of your trade. The two numbers that should agree are the amount shown to you at confirmation and the amount that arrived.
How do I keep price impact small?
Trade against depth, and split size. The same order costs less in a deeper pool, and a large order broken into smaller ones over time pays less than one that walks the whole curve at once. Pool depth is public on any DEX analytics site.
What is impermanent loss?
When the price ratio of a pool's two tokens moves a long way, a liquidity provider can withdraw less value than they would have held by keeping the two tokens in a wallet. It concerns providers, not traders.
Do I need to provide liquidity to use a DEX?
No. You trade against pools other people have filled. Providing liquidity is a separate activity with a different set of risks.
Does Inkryptus use an AMM for internal swaps?
Internal swaps on Inkryptus execute at a rate quoted and locked at confirmation, with a flat 3 USDT fee per operation. They are not routed through a DEX pool, so the constant product formula does not apply and there is no price impact from pool rebalancing. How swap works on Inkryptus.
Next steps
Explore more:INKY Token to understand INKY's liquidity. Liquidity Documentation for pool details.
Trade and use staking with Inkryptus
Inside the Inkryptus app, swaps between the assets it lists run at a flat 3 USDT fee, at the rate shown when you confirm. The INKY token also trades publicly on the INKY/USDT pair via PancakeSwap, where depth is verifiable on GeckoTerminal or DEX Screener.
Investments in crypto assets involve risks, including price volatility and risk of partial or total loss of the invested amount. Digital tokens are not legal tender. This content is informational and does not constitute investment advice.