Harvest Finance (FARM)

Started writing a reply to this but felt it was a good opportunity to write some on topic content on arbitrage and AMM's, so see below!

The pools don't sell or buy any assets to rebalance. That's just not how the AMM works.

Each AMM pool is a closed system, governed overall by a formula that essentially says " I need to have a 50/50 split of assets within the pool" It cannot autonomously buy or sell assets, a third party must come in and do that - Arbitrage.

As an example (We'll use FARM)

A buy comes in that causes the price of Farm in the FARM/XRP pool to increase by 5%. This happens because after the buy, there is less Farm, and more XRP in the pool. To keep that weighted 50/50 ratio, the AMM pool simply increases the price of Farm to account for the decrease in Farm in the pool.

At protocol level, that is all that happens. You then have a pool that has FARM at a 5% increase in price vs where it was.

Now - Farm has an mXRP/FARM pool. The swap on our XRP pool caused that pool to increase in price

My love language is farming and dumping farm tokens https://t.co/TydmEJmyHv