Blockchain – How to calculate how a particular transaction affects the token price?
How to calculate the impact of large transactions on token prices in a decentralized finance (DeFi) environment
I am developing a tool to analyze the impact of large transactions on token prices on the Polygon network using a decentralized exchange (DEX) environment, specifically the Quickswap Router contract as a case study. My goal is to programmatically estimate price changes due to significant transactions.
script:
Assume you are observing the Polygon mempool for transactions destined for the Quickswap Router contract. We detect transactions that exchange a significant amount of a stablecoin (denoted as S) for a token (denoted as R). The transaction details are as follows: $34,000 of S is exchanged for R tokens priced at $7.21. Ignoring transaction fees, this equates to purchasing approximately 4,715.67 R tokens.
purpose:
I would like to calculate the post-trade price of R in a scenario where the initial state of the liquidity pool is:
- Liquidity pool size (initial): 100,000 R and 721,000 S (representing a price of 1R = 7.21S or $7.21 per R token)
- custom size: To buy R, buy $34,000 worth of S.
- Current R price: That’s $7.21 per R.
draw close:
For simplicity, we used the Constant Product Market Maker (CPMM) model and excluded factors such as slippage tolerance and volume from the calculations. The process is as follows:
- Calculate the number of R tokens purchased. Divide your order size by the current R price.
- Liquidity pool updates: Subtract the R tokens purchased from the pool and add the S spent.
- Calculate the new price of R. The new price is determined based on the updated liquidity pool ratio.
calculate:
After executing the trade, the liquidity pool is adjusted and the new price for R is calculated. However, I am looking for feedback on this approach and suggestions for more accurate and efficient ways to estimate the price impact of large transactions in a DeFi setting.
Does anyone have any insights or improvements to suggest for this calculation method? Any advice or alternative strategies would be greatly appreciated.
