AMM

An Automated Market Maker (AMM) is a protocol used by decentralized exchanges (DEXs) to enable users to trade digital assets directly with a liquidity pool instead of a traditional order book system. Unlike centralized exchanges, which need buyers and sellers to be matched for trades to occur, AMMs use smart contracts and mathematical formulas to determine the price of assets and facilitate instant swaps at any time.

At the heart of an AMM is the liquidity pool—a shared reserve of two or more tokens that anyone can contribute to as a liquidity provider. When traders interact with the AMM, they are actually exchanging tokens with this pool. The AMM algorithm dynamically adjusts prices based on the ratio of assets remaining in the pool, which allows for automated, permissionless trading without an intermediary.

AMMs have revolutionized decentralized finance (DeFi) by enabling continuous and efficient trading, even for less liquid assets. They also empower anyone to become a liquidity provider and earn a share of trading fees.

Bidask Implementation

Bidask Protocol implements an algorithm where the price generally only moves as much as the user swaps, including the fee. Thus, the fee is considered in both assets, which slightly reduces volatility and bin change frequency. In this method, it is also unnecessary to find virtual assets. For a full explanation please refer to the White Paper.