I realize that I do not understand how the digg/wbtc Uniswap pool would work in light of the fact that digg’s supply changes daily. Let’s take this simple example:
Say that WBTC = 50,000$ DIGG = 60,000$ = > WBTC = 0.833DIGG
You use 1 WBTC to buy 0.833 DIGG and then contribute 1WBTC and the 0.833 DIGG (you just bought) at Uniswap to get LP token…At that point in time (time 0) , value of your portfolio is 100,000$
Say 24hrs pass and the price of WBTC is still $50,000 and there are NO trades in Uniswap (no fees have been gained or Impermanent Loss has been incurred) but the supply of DIGG has been adjusted upwards by 17% (I know it doesn’t work this way but for the sake of simplicity let’s assume it does) so that now 1WBTC = 1 DIGG
The question I have is: What happened to the constant product formula? WHen I contributed at time 0 the constant product was 1 (wBTC) * 0.833 (Digg) = 0. 833 but now just because of the way digg works (I now have 1 digg instead of 0.833) the constant product won’t work as it will be 1WBTC * 1 DIGG = 1 How is this accounted for?
In my head, it should still be the case that the value of my portfolio is unchanged at 100,000$ - I now have 1 WBTC (=50,000$) and 1 DIGG (instead of 0.833) but the value of the 1DIGG is 50,000 (and not 60,000)…