Welcome to the Free Market AMM (Automated Market Maker) FAQ!
To help users better understand and use our AMM function, we have carefully prepared this Frequently Asked Questions section. Whether you are a novice who has just come into contact with AMM or a seasoned user who wants to gain an in-depth understanding of the unique advantages of the SuperEx platform, you can find the answers you need here.
What is AMM?
Answer: The Automated Market Maker (AMM) mechanism is a decentralized trading model without intermediaries that serves blockchain smart contracts. It automatically provides buy and sell prices for trading pairs through liquidity pools. AMM is widely used in the blockchain decentralized finance (DeFi) ecosystem and is one of the core technologies of decentralized exchanges (DEX) such as Uniswap, SushiSwap, and Curve.
What are the differences between AMM and traditional market-making methods?
Market makers in the traditional financial market maintain market liquidity by providing bid and ask quotations, while AMM realizes the automated supply of liquidity through smart contracts and preset algorithms, enabling transactions to be carried out independently and maintaining relatively stable liquidity. The main differences are as follows:
1）Liquidity Provision Method
· Traditional market-making: Liquidity is provided by professional market makers, usually through complex algorithms and market strategies, by placing orders on both the buy and sell sides to earn the bid-ask spread.
· AMM: It is decentralized. Any user can become a Liquidity Provider (LP) by injecting funds into the Liquidity Pool without the need for professional knowledge and can earn trading fees.
2）Pricing Mechanism
· Traditional market-making: Prices are driven by the Order Book. Buyers and sellers manually match and complete transactions according to market supply and demand.
· AMM: Prices are dynamically calculated through algorithmic formulas (such as Uniswap’s x * y = k). There is no need for an Order Book, and transactions are completed instantly without users having to wait for counterparties.
3）Liquidity Efficiency
· Traditional market-making: Liquidity depends on the strategies of professional market makers and sometimes there may be insufficient liquidity when the market fluctuates greatly.
· AMM: The liquidity pool is always available, but when there is a severe shortage of a certain asset in the pool, there may be a problem of large slippage.
4）Application Scenarios
· Traditional market-making: It is mostly used in centralized exchanges (CEX) and is suitable for users who engage in high-frequency trading and have complex order types.
· AMM: It is mainly applied to decentralized exchanges (DEX), lowering the participation threshold and attracting more ordinary users.
5）Revenue Distribution
· Traditional market-making: The revenue belongs to the market makers, and ordinary users cannot directly participate.
· AMM: Liquidity providers earn fees by injecting funds, and anyone can participate and share the revenue.
AMM handling fee rebate mechanism: When a user conducts a buy or sell operation in a certain trading pair, the trading handling fees paid will be distributed proportionally to the liquidity providers who have injected funds into this trading pair.
Free choice of currencies: It supports users to freely choose trading pairs to inject liquidity. Whether it’s popular mainstream currencies or emerging token projects, users can participate according to their own investment preferences.
High passive income: Through SuperEx’s AMM, any user can participate in the liquidity pool and easily become a Liquidity Provider (LP) without complicated operations. When other users conduct buy and sell operations in this trading pair, each transaction will generate handling fees, and these handling fees will be distributed proportionally to the liquidity providers. This means that Liquidity Providers can earn passive income by providing liquidity without actively trading.
In actual use, users only need to take three steps to start enjoying liquidity returns:
· Log in to the SuperEx platform;
· Select the target currency;
· Inject tokens and USDT into the liquidity pool and start earning returns.
The whole process is easy to operate, without the need for complicated technical knowledge or manual management, allowing more ordinary users to easily participate in liquidity market-making.
With the dual support of the AMM and free token listing functions, SuperEx has created a truly free and efficient trading environment. It not only lowers the token listing threshold for small and medium-sized projects but also brings more diversified investment opportunities for ordinary users, creating a win-win situation for both users and project parties.