Automated Market Maker
What is Automated Market Maker?
- An AMM (Automated Market Maker) is a type of decentralized exchange protocol that sets the price of an asset based on a mathematical formula. Unlike spot exchanges that use the order book and order matching system, decentralized exchanges use a pricing algorithm to calculate the price of an asset.
- NEOPIN Swap uses the X * Y = K formula. X and Y are token quantities in a liquidity pool, while K is a constant that refers to the total liquidity in the pool. The value of K remains a constant unless tokens are supplied to or withdrawn from the pool.
- An AMM works similarly to an order book of a spot exchange. However, a transaction counterpart is not necessary. Users can predict token liquidity and price through the smart contract and AMM, which “makes” the market.
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