AMM 101 – Things to know about AMM

Define

AMM (Automated Maket Makers) is a mechanism to help users buy assets in the fastest way. With an algorithm to automatically calculate asset prices, this mechanism is opposed to Order book – where the asset price will be set by the seller/buyer.

AMM was born with many purposes, among them can be mentioned as:

• Increase liquidity for newly launched project tokens
• Reduce slippage when buying illiquid assets on exchanges using Order book.

To learn more about the benefits and limitations of AMM, you can refer to the following article.

Read more: What is AMM? Overview of the AMM . mechanism

Some prominent names

Uniswap

Up to now, Uniswap is considered a monument in the AMM world with TVL (Total Value Lock) over $1B. Therefore, almost all tokens of new projects can be found here.

However, because the mechanism of creating tokens on Uniswap is too easy, if you are not careful, it is easy for users to buy fake tokens by mistake.

Sushiswap

Sushiswap is a fork from Uniswap, and this is also the first fork project in the AMM segment. Sushiswap has surpassed the likes of Burgerswap, Sashimiswap,… to prove itself worthy of being a force in the AMM field.

Despite some bad news in the past, with the leadership of 0xMaki, Sushiswap has revived and is on its way to being stronger than ever.

Balancer

Despite being one of the first AMMs along with Uniswap, the Balancer has made a significant improvement in pool creation, allowing users to create pools with 8 different tokens (in Uniswap only 2).

With this plus, in addition to users being able to be more flexible in transactions, the pool’s liquidity will also be improved.

Ways to make a profit for AMM

Become a Liquidity Provider (LP)

To become an LP, users must contribute tokens to an available pool, or create a pool for this token if not already. The LP will receive incentives such as transaction fees, LP tokens or possibly native tokens of AMM.

However, becoming an LP will also face some difficulties, if users do not calculate carefully, it is likely that they will not get the desired profit, or worse, will suffer a loss.

Read more: The risks of being an LP

Retroactive

Retroactive is an activity that rewards users who interact with a project before a specific timeline.

This form is recently used more and more for users holding a certain token, or users interacting with DEX exchanges.

Eg:

• August 2020, SynLev DeFi airdrop for users holding LINK and ETH (1,000 SYN per LINK, and 5,000 SYN per ETH). Each SYN currently costs $0.56
• 9/2020, Uniswap airdrop for all wallets that interact with Uniswap, on average each wallet receives 400 UNI. At that time, UNI’s highest price was up to $15

As can be seen, the airdrop value from retroactive is extremely large. If you miss these opportunities, there are still some other DEXs that may have retroactive waves:

• Zapper
• Dharma
• 1Inch
• DeBank
• DyDx
• Zerion

Invest in AMM . tokens

Compared to the above two forms, this is the easiest and most popular form of making profits. Like other projects, users need to know the token’s function well to be able to make appropriate choices.

Basically, tokens in this array have 3 uses:

• Network administration.
• Staking to receive transaction fees.
• Bridge in the swap of tokens.
• LP Rewards.

One factor to consider when investing in AMM tokens is TVL cash flow. Because the more assets locked in the project will prove the liquidity will also increase, resulting in the money received from the transaction fee also increase.

For example: As soon as the UNI token donation program for LP ended, Uniswap’s TVL dropped sharply. And with the preparation of new product launches, TVL on Sushiswap has also grown exponentially these days.

summary

We are currently witnessing the explosion of DeFi in general and AMM in particular, when the value of TVL has not shown any signs of decline. Along with that, a series of new AMMs were born to overcome the disadvantages of previous projects, helping users to save a lot of time and improve profits.

Besides, the fact that many people think that AMM will replace the Order book and become the future of the exchange also makes this market more exciting than ever.

What do you guys think about AMM? Is this the exchange standard, and will DEX prevail over CEX in the future?

If you have any questions about the article, please leave a comment in the comment section, or join the discussion with other brothers at the Techtipsnreview Insights group.

Best regards and see you in the next posts!