An Automated Market Maker (AMM) is a protocol that uses specialized mathematical algorithms and liquidity pools to simplify the trading of digital assets. It operates on smart contracts. The algorithms automatically determine asset prices based on supply and demand. AMMs work 24/7.

Liquidity Pool

A liquidity pool is a «storage of digital assets» where an equal amount of tokens are held on two sides of a balance. Liquidity pools are managed through smart contracts on decentralized exchanges: during a trade, the required amount of token «A» is taken from one side, while token «B» is provided by the trader from the other side. This ensures instant and reliable transactions, as assets are always available in liquidity pools at any time. Assets are deposited into the pools by liquidity providers to facilitate trading. Liquidity providers earn a percentage from each transaction within the pool. For example, on Ston.fi, 0.2% of the transaction amount is distributed among all liquidity providers based on their share of tokens in the pool. In most cases, liquidity pools are used for token exchanges on decentralized exchanges such as Uniswap, Sushiswap, PancakeSwap, and others. They play a crucial role in maintaining market stability and ensuring the availability of cryptocurrencies for users. Liquidity providers can earn on their assets by enabling exchanges and receiving fees for their share in the pool. This also serves as an incentive to participate in decentralized finance (DeFi) and actively support the digital asset ecosystem.

It is important to note that managing liquidity pools requires caution and a thoughtful approach, as incorrect actions or decisions can lead to losses. Liquidity providers should carefully study the terms of each pool, assess the risks, and calculate potential profits. Additionally, they should monitor market changes and the dynamics of demand for various tokens to effectively manage their assets and maximize their profits.

Impermanent Loss

Impermanent loss occurs when there are discrepancies in prices between assets. The greater this discrepancy, the larger the loss. If the price of a cryptocurrency decreases relative to a stablecoin, it can cause financial losses for the liquidity provider due to the difference in asset values. This is referred to as impermanent loss. On the other hand, if the price of a cryptocurrency rises, losses may still occur because the liquidity pool does not reflect the actual market value of the asset. To avoid significant financial risks, most cryptocurrency market participants engage in yield farming using stablecoins, such as USDT, as they have lower volatility compared to cryptocurrencies, whose prices can fluctuate dramatically. It is also important to pay attention to the Annual Percentage Rate (APR), which may offset impermanent losses. However, every financial investment decision should be carefully considered, and the principle of DYOR (Do Your Own Research) should be applied.

Who Developed AMM?

The first person to discuss the application of an AMM was Alan Lu, a member of the Gnosis project team. His colleague, Martin Köppelmann, shared the idea of developing and implementing AMM with Vitalik Buterin. Later, Buterin mentioned it on Reddit in 2016 and in his personal blog. He communicated with Hayden Adams and advised him to apply for a grant to develop an AMM. In August 2018, Hayden Adams won the grant and received $100,000 in funding from the Ethereum Foundation. This led to the creation of Uniswap, the first platform based on AMM.

Examples of Popular AMMs

Uniswap

Uniswap is the first decentralized platform based on AMM, with a daily trading volume of $1.5B, according to Coingecko. The experimental version was launched in November 2018, and in May 2020, updated permanent features were introduced.

In September 2020, the exchange launched its native token, $UNI. This airdrop became the second-largest distribution in cryptocurrency history.

Curve

Curve is a decentralized exchange that operates on the Ethereum network. The exchange also has its own token, $CRV. Today, it operates on 10 different blockchains, including Arbitrum, Ethereum, Aurora, Fantom, Harmony, Moonbeam, Optimism, Polygon, xDai, and Avalanche. It was created by Mikhail Egorov and launched in January 2020.

PancakeSwap

PancakeSwap is a decentralized exchange focused on specific types of tokens developed by Binance. The exchange has its own token, DOGE for DOGE/BNB pool with sufficient liquidity. After that, you will need to add your $DOGE tokens and automatically receive the corresponding amount of BNB at the latest exchange rate.

AMM in TON Ecosystem

Several popular AMM exchanges operate within TON Ecosystem, such as STON.fi, DeDust.io, and Swap.coffee.

STON.fi

STON.fi is an automated, decentralized market maker known for its relatively low fees, fast operation, user-friendly website navigation, and integration with TON wallets. It was founded in 2022 by Vyacheslav Baranov, Mike Fedorov, and Andrey Fedorov. The platform has its native token, $STON.

Features of STON.fi:

Any user can easily access the platform through the Telegram Mini App STON.fi Bot.
Trading across multiple blockchains without the need for bridges or token wrapping.
A unique staking model for the ARKENSTON and $GEMSTON. $ARKENSTON is an intrinsic token (non-transferable and non-sellable) that grants its holder governance rights over the STON.fi project and the ability to participate in decision-making. $GEMSTON is a reward token for staking, which can be sold, transferred, or exchanged.
The platform utilizes Omniston, a decentralized liquidity aggregation protocol that optimizes token swaps and provides better rates based on the RFQ (Request for Quote) system.

DeDust

DeDust is a decentralized exchange that operates based on the AMM mechanism. It was founded in 2022 by Nik Nekilov. The utility token, initially named DUST in October 2024.

Features of the Exchange:

Portfolio: This section allows users to track their trading activities and results. The feature becomes available upon connecting a wallet.
Exchange: This option enables the swapping of different types of tokens. It includes settings for slippage tolerance (from 1% to 10%) and an expert mode. It supports a wide range of assets.
Earn: A dedicated section for earning through token liquidity. It includes a table with a list of trading pairs, turnover sizes, 24-hour trading volumes, and other important information.

Swap.coffee

Swap.coffee is a DEX aggregator on TON and a partner of Binance. It has its own token, $CES. The platform stands out by offering cashback in various tokens for transactions conducted on it.

Features of the Exchange:

The ability to receive cashback in various tokens when swapping through the platform.
More favorable token swaps due to a special algorithm integrated by the developers. This algorithm combines pools and optimizes routing, allowing users to conduct exchange operations as efficiently as possible.

The decentralized exchanges mentioned above do not require identity verification (KYC) (as of November 2024).

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