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How Does Pricing Work

Pricing is based off Uniswap V2's constant value model of xy=k, See Uniswap Whitepaper for a more in-depth look at their AMM design.

Prices are derived by the reserves of both assets in a pool. For example Ether and some ERC721 collection. Each NFT in the pool has a weighting that represents its value compared to the other NFTs in the pool, and the NFTs in the pool are valued the same as Ether in the pool.

From Uniswap V2 Docs

Price Changes and Weights

Like Uniswap prices are derived from the ratio of the 2 assets in a pool, in the case of AssetMerge the ratio of the token reserves to the sum of NFT weights in a pool.

Each NFT has a weight, the default weight is called the Base Weight which is 1e18. Weights get changed when added as liquidity or when they are bought or sold from the pool. When a liquidity provider adds an NFT they set the value of the NFT and provide the NFT and matching value of tokens to the pool.

NFT Weight Delta

When a NFT is bought from the pool, its recorded weight is increased for the next time its sold. And when a NFT is sold to the pool its weight is decreased. This change in weight from a swap is called the NFT Delta.

The formulae to calculate NFT delta is (nftWeight / totalPoolNFTWeight) * nftWeight, so if a NFT has weight equal to 10% of the total weight in the pool, then its weight will increased or decreased by 10% on a buy or sell respectively.

XY=K Constraints With Weight Delta

The token input or output must change to maintain the same XY=K constraints, whilst valuing weights higher or lower on a swap. K will tend to grow with volume when accounting for both the trade fee + the NFT Delta.