What is an Automated Market Maker (AMM)?
An Automated Market Maker (AMM) is a platform that allows you, as a digitalย currency trader, toย participate in permissionless trading using liquidity pools instead of traditional order books. Liquidity pools are pools of two or more tokens supplied by users, which are then used for trading. The prices of the tokens within the pool are determined by blockchain oracles, ensuring transparency and accuracy.
Understanding Impermanent Loss
Andย once you add tokens to a liquidity pool, you become an investor and receive a share of the fees collected from each trade. Nonetheless, itโs criticalย to be aware of the concept of impermanent loss. Impermanent loss occurs when price fluctuations change the ratio of tokens within the pool. Thisย implies that occasionally, you may have been better off simply holding the tokens in your own wallet instead of providing liquidity.
Hot Take
Automated Market Makers (AMMs) revolutionize digitalย currency trading by offering permissionless trading through liquidity pools. Nonetheless, itโs critical toย comprehend theย dangers involved, such as impermanent loss. By educating yourself about the intricacies of AMMs and remaining notified about market trends, you can navigate the world of digitalย currency trading with confidence.
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