Automated Market Makers (AMMs): One popular type of DEX is the Automated Market Maker (AMM). Uniswap, for instance, relies on an AMM model. Here’s how it works:
Instead of using an order book to match buy and sell orders, AMMs use liquidity pools.
Liquidity providers (LPs) deposit funds into these pools, which consist of pairs of tokens (e.g., ETH/USDT).
When a user wants to trade, they interact with the liquidity pool directly.
The price is determined algorithmically based on the ratio of tokens in the pool.
As more users trade, the pool’s token balances change, affecting the price.
Impermanent loss can occur for LPs due to changes in token prices while providing liquidity
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That's quite a bit more economic voodoo than I typically dabble in. I thought you seemed like too sharp of a guy to be asking such a simple question! 😂
lol. I had to educate myself.! !BBH
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