What is an Automated Market Maker (AMM) in DeFi?
The explosion of the DeFi sector in the last year has brought a set of solutions to the space that has managed to grow its value to exponential levels.
According to DeFi Pulse, the DeFi market was estimated at 650 million dollars. The sector boasts billions of dollars that have multiplied by a factor of fifteen in respect of the total value locked in the main protocols that exist in decentralised finance.
One of the applications in the world of decentralised finance that has played a major role in its rise are Automated Market Makers (AMM). The ability to allow investors and cryptocurrency enthusiasts to use their portfolios to provide liquidity, earn returns and concurrently increase demand for token exchange, is undoubtedly one of the greatest achievements of this sector.
In today’s article, we will explore the benefits and future of AMMs.
Benefits of AMMs
Traditionally, for a crypto investor to exchange crypto assets, they are needed to use a centralised exchange. There are multiple problems with centralised exchanges such as limited token support, security issues, high fees etc.
AMMs solve the above problems by removing the centralised entity and ensuring a swap is executed via smart contracts. Moreover, AMMs have given birth to an entirely new sub-field called “yield-farming”, which allows anyone to earn interest on their idle cryptocurrency by providing liquidity.
But however fascinating AMMs may be, they are far from being perfect.
Problems With Swap
While AMMs are a fascinating new technology, it needs time to evolve and some disadvantages have been identified.
For example, we can find that impermanent losses have been one of the great stigmas presented by both Uniswap and some solutions after it. Impermanent loss is the difference between holding tokens in your wallet versus holding it in a liquidity pool. You can learn more about impermanent loss here.
As if that were not enough, another challenge that traders have to factor is slippage, which are particularly concerning in pairs with low liquidity.
Solutions Coming
With an awareness of the deficiencies in the current version of AMMs, the team at centaur have embarked on a journey to solve these issues.
Centaur is aiming to deploy our liquidity pool and solutions to existing problems in the decentralised finance space.
We will be posting our whitepaper on our liquidity pool soon!
About Centaur:
By combining the best elements of decentralised finance with measured regulatory control, Centaur is bridging DeFi and traditional finance. For more information, please take at a look at our website or join our Telegram community discussion group and announcement channel.
You can also go through our whitepaper or play around with our testnet block explorer and liquidity pool (Ethereum Ropsten).
For more information, please take at a look at our:
· Telegram Announcement Channel
· Liquidity Pool (Ethereum Ropsten)
Signing off,
Centaur
