Automated Market Maker (AMM)
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What is Automated Market Maker?
An automated market maker (AMM) is a sort of decentralized exchange (DEX) technology that prices assets using a mathematical formula. Assets are valued using a pricing algorithm rather than an order book as in a typical exchange.
Understanding Automated Market Maker
The Automated Market Maker (AMM) exchange protocol is a DeFI protocol. It is essentially a market-making bot that uses a mathematical algorithm to determine the price of a given crypto pair.
Instead of depending on order books, like traditional exchanges do, AMM relies on mathematical calculations, which may vary amongst AMM protocols. Traditional market making is a feasible option for organizations that deal in large volumes since it quotes the best price and most attractive bid-ask spread on order-book exchanges. However, the decentralized nature of AMM protocols allows any user to create new or contribute to current markets.
Typically, an exchange protocol will use a proprietary formula to calculate the price of the assets in the liquidity pool. Furthermore, there are some functional differences.
The following are some of the extant AMM protocols.
3Commas.io – A cryptocurrency trade management tool that provides DCA bots, Grid bots, Options bots, Futures bots, HODL bots, Scalper Terminal, and full Portfolio management from a single user-friendly interface.
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