What is AMM in cryptocurrency?

sahar78 (71)Mod [SFP]in Steem Alliance • 4 months ago

Assalamualaikum

Greetings to you all!
AMM stands for automated market maker and I am here to elaborate this concept.

In crypto world automated market maker is defined as kind of exchange protocol which is decentralized which is used for trading means sell and purchase of digital assets in an automated way.Automated market marker is becoming famous with the passage of time because it is helpful in providing liquidity as well as it also allow users to trade there affects without any need of and requirement of traditional orders of books or any need of intermediaries in between.

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When I talk about automatically market makers then they work at concept of liquidity pools and their are pairs of digital assets that these pool contains like if I given example then I can say that it is it Ethereum and any other particular token with it. Providers of liquidity submit equal amount of both assets into the pool so in this way it permits for trading in between them.Liquidity pools insentivized by earning share of trading fees which is generated by automatic market maker.

Automatic market maker also works on other concept or mechanism which is constant product formula which is written as like this x*y=k. This is a formula showing that product of quantities of you different assets in liquidity pool would remain constant. If I user want to buy and sell any of these assets for another then automatically market maker automatically adjust prices on the base of availability of liquidity in the pool.

Now I am explaining in a brief way that how trading process occurs. Suppose that you want to buy and sell Ethereum for some particular token by the use of automated market then you have to select token of your choice from the pairs which are available to you in your automated market maker interface. Automated market maker is helpful in the calculation of exchange rate on the base of liquidity in pool so the more they would be liquidity the small would be the price which would be impactful for the trade.

There is one of the most important and significant aspect that we should consider when we are using automated market maker and it is price impact and its slippage. It is important to understand about price impact and slippage. If there is any change in exchange rate which is caused by trade especially during dealing with larger volume during your trade is called price impact. If actual execution price of trade is different from price which is expected due to limited in pool then it would be regarded as condition of slippage.

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• Automated market maker comes with different benefits on traditional exchanges so first of all we are providing liquidity in market permitting any person to become a provider of liquidity and to earn fees.

• Automatic market maker is also very helpful in becoming decentralised which is another benefit associated with it because it is not reliance on any Central authority or any order book for execution of trade.

• Automated market maker as is decentralized so that's why is very understood that this level of decentralization make it resistant to censorship and in this week is a great source of providing accessibility and higher approach to users in all over the world.

• At last I want to give any example of automatic market maker in cryptocurrency so you can take in count the example of Uniswap which is most significant and well known widely used automated market maker.

If I summarize whatever I have explained then today I present myself in front of you with my topic automated market maker about which first of all I have explained this concept that basically what is this and then I have explained different behind and background mechanism of this concept which are very easy to understand and then explain some of the benefits that are associated with automated market maker. Last but not least I have also given an example of it so now hopefully the topic is clear to all of you.