Automated Market Maker: The Game-Changer in DEX
Crypto exchanges are developing, competing with others, and trying to create better conditions for traders. Automated Market Maker plays a key role in this process. Let's consider it and check how trading in liquidity pools works.
What is Automated Market Maker?
Automated Market Maker (AMM) is a type of DEX protocol that uses algorithmic "money robots" to make it easier for traders to buy and sell crypto assets.
Everyone is familiar with P2P, the traditional trading system that occurs directly between users' wallets. AMM, in turn, establishes a connection between users and smart contracts. Along this, the price you get for the asset you want to buy or sell is instead determined by a mathematical formula. The main benefits of AMM are Liquidity Pools.
How do Liquidity Pools work?
Liquidity is the ability to buy and sell assets without a radical change in value. The concept of liquidity applies to two things: assets and the market. The asset is liquid if it can be easily exchanged for real currency. Market liquidity, in turn, determines the presence of investors who are always ready to trade crypto.
Liquidity is the ability to buy and sell assets without a radical change in value. The concept of liquidity applies to two things: assets and the market. The asset is liquid if it can be easily exchanged for real currency. Market liquidity determines the presence of investors who are always ready to trade.
Liquidity Pools are made up of cryptocurrency pairs. The Pool creator adds assets and sets a price close to the market. Next, there is a facilitated exchange of crypto, which is corrected according to AMM algorithms.
For example, there is a liquid pair ETH/USDT. The ratio of currencies can determine the price, so if someone buys USDT, the price of ETH goes down. Therefore, such AMM is profitable for all sides and forms the future of crypto trading.
The Difference Between AMM V2 & V3
Many DEXs are upgrading AMM versions to improve trading within Liquidity Pools. In this case, the classic version of V2 is replaced by the more advanced V3. A concrete example is our partner Biswap DEX. It is a trusted DeFi platform on the BNB chain that uses a liquidity pool system and has switched AMM to V3. Let's examine these changes and see why they apply to the BFG token. The picture below shows the main differences between the Biswap AMM versions:
80% Reward for Liquidity Providers
Each user pays a small commission for liquidity trading. Liquidity providers will receive 80% instead of 75% of this amount (as in AMM V2). It will be up to 20% higher than other V3 DEXs on the BNB Smart Chain. These changes will positively impact the liquidity market because many new LPs will be involved.
Capital Efficiency
The implementation of AMM V3 on Biswap led to an increase in capital efficiency and much favorable trading conditions for users. LPs can set their price range instead of a price curve from 0 to ∞. If this range matches or intersects with the interval in most trading activity, your liquidity will give you up to 4000 times greater capital efficiency than in V2. It is commonly referred to as concentrated liquidity.
Passive Income from V3 Farms
As soon as users provide liquidity and their range matches the current price range, LP will automatically start earning on active V3 Farms without making additional transitions to activate it.
0% Trading Fee & No Slippage on Limit Orders
As a trader, you get a broader spectrum of trading opportunities on the AMM V3 protocol. Limit orders allow you to purchase or sell crypto assets at or below a price. As an order maker, you get a 0% trading fee spent and no slippage. If you prefer regular swaps, a new Auto Router will execute your swap furiously fast and at the best price. Experience benefits for BFG trading and earnings at AMM V3 DEX!
The BFG token comprises the BFG/USDT and BFG/BSW liquidity pairs. So, all of the above changes apply to them. Swap BFG tokens on Biswap with the best conditions.
Therefore, the Biswap update to V3 will positively affect the platform, its users, and the entire DEX world. Many platforms will pick up this pace, and trading will reach a new level!
