Automated market makers are dead
Cointelegraph
Published Jun 22, 2021 05:07AM ET
Updated Jun 22, 2021 06:40AM ET
Billions of dollars have flowed into decentralized exchange protocols based on the automated market maker (AMM) model, which bootstraps network effects by incentivizing liquidity with project tokens, thereby creating a self-contained ecosystem of traders and yield earners.
This mechanism has allowed decentralized exchanges (DEXs) to compete for the first time with centralized counterparts, such as Coinbase, which can afford to use cash from their balance sheet to pay for user acquisition (e.g., through sign-up and referral bonuses). As a result, AMMs have been hailed as the cornerstone of decentralized finance (DeFi), spawning multiple permutations and sparking the yield-farming trend that has helped draw billions of U.S. dollars into smart contracts.
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Written By: Cointelegraph
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