What is Automated Market Making (AMM)?
Automated Market Making (AMM) is a protocol that automatically calculates buying and selling prices based on a predefined formula to provide a continuous quotation for the market. In terms of the trading mechanism, CoinEx combines AMM with the order book, and the system automatically converts the liquidity pool into an order book.
CoinEx AMM allows every user to become a market maker. By adding liquidity to the liquidity pool, users can share the trading fees earned by CoinEx.
About AMM Algorithm
CoinEx AMM uses the "Constant Product Market Maker" model, which means users need to deposit two different cryptos into the liquidity pool, and the product (i.e., multiplication result) of the two token balances remains constant.
There are two algorithms applied by CoinEx:
1. "Infinite Constant Product Market Maker" algorithm: mainly adopted in non-stablecoin markets, e.g. CET/USDT. This algorithm provides market liquidity no matter how high or low the price is.
2. "Finite Constant Product Market Maker" algorithm: mainly adopted in stablecoin markets, e.g. USDC/USDT. This algorithm provides market liquidity in a specific price range, improving capital utilization.
What is Liquidity Pool?
A liquidity pool consists of the assets used for AMM. Based on the "Constant Product Market Maker" model, the total value of each token in a liquidity pool must remain the same. Liquidity Providers (LPs) will gain 50% of the trading fees generated in the pool by adding liquidity. Profits accumulate daily in the pool and can be withdrawn in full when removing liquidity.
In AMM markets, each trading pair has a liquidity pool that contains two assets and executes the rule of trading assets, and adding or removing liquidity.
The rule stipulates that the total value of each token in a liquidity pool must remain the same. Therefore, the formula X × Y = K ensures that if the quantity of token A decreases, the quantity of token B must proportionally increase (and vice versa).
What is AMM Market?
Any market that supports automated market-making is an AMM market. The AMM market uses a different fee system. VIP does not enjoy any rate discounts, and using CET to deduct transaction fees is unavailable.
|
User Types |
Rate in Non-stablecoin AMM Markets | Rate in Stablecoin AMM Markets |
| Normal Accounts | 0.30% | 0.10% |
| Market Maker Accounts | Maker: 0%; Taker: 0.3% | Maker: 0%; Taker: 0.1% |
Features of Automated Market Making
1. Profits from automated market making
After providing liquidity, your funds will be deposited into the liquidity pool for automated market making. 50% of the trading fees earned in this market will be distributed to all liquidity providers according to the proportion of the liquidity pool.
2. Cumulate daily profit and withdraw all at once
On an hourly basis, the trading fee income earned from your liquidity will be calculated, and automatically deposited into your AMM account. Also, the cumulative incomes will be withdrawn, when removing liquidity from the pool.
3. Free access, no additional fees
You can make real-time transfers from Spot account and AMM account, by adding and removing liquidity. In every single market, there is no upper limit for each user Or additional fees to inject liquidity.
How to Profit via AMM?
CoinEx AMM income mainly comes from the trading fees returned by CoinEx. All users who provide liquidity to the liquidity pool of AMM can get 50% of trading fee in the market (Note: The trading fee ratio of CET market is 100%), according to the proportion of the liquidity pool.
Take CET/USDT as an example:
Suppose CET/USDT market has made 10,000 USDT in trading fees in an hour.
If your liquidity takes up 1% in the CET/USDT liquidity pool for the hour, you will get the following income:
10,000 × 100% × 1% = 100 USDT
10,000 × 100% × 1% = 100 CET
What Markets Support AMM?
Currently, CoinEx has 700+ AMM markets, please click [HERE] to learn about AMM, and view markets and further information such as total liquidity, 7-day value, 7-day APY, etc.
Risk Warning
The assets in the AMM Account will be added to the liquidity pool for automated market making. Due to price fluctuations, impermanent losses might occur and the amount of the two assets might change when the liquidity is removed.
Impermanent loss diminishes if prices revert to their initial ratio, and users may profit from liquidity provision over time.
Related Articles:
What's Impermanent Loss and How to Avoid It