Automated Market Makers

What is Market Making

What is an Automated Market Maker?

How does an AMM work?

What are the benefits of using an AMM?

  • Liquidity — The liquidity available on decentralized exchanges is often not sufficient for large trades. AMMs are able to provide much higher liquidity in situations like these, where the total order book volume on DEXs is insufficient. This makes them a natural fit for high-volume token sales, airdrops, and similar initiatives.
  • Price Discovery — When there is a shortage of liquidity, it is often difficult to ascertain what the actual market price of an asset is. AMMs are able to provide more accurate estimates when there isn’t enough data available due to lack of liquidity.
  • Easy to use — Users no longer have to worry about placing orders or waiting for them to get filled. All they need to do is deposit their assets into the smart contract and trade will be automatically facilitated.
  • Accessible — AMMs are open for everyone who has access to the internet. They remove barriers which used to exist between traditional financial markets and regular people.
  • Decentralized — AMM platforms are decentralized and permission less by nature, meaning that nobody can arbitrarily manipulate prices or stop users from trading as they wish
  • Low fees — In addition to being permission less, AMMs also charge very low fees when compared with other types of exchanges (including both centralized and decentralized ones).

Impermanent Loss

Conclusion

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