Decentralized Exchanges Maturing, but High Demand Reveals Limitations
Cointelegraph
Published Aug 15, 2020 10:30AM ET
Updated Aug 15, 2020 12:00PM ET
Decentralized exchanges, also known as DEXs, have risen significantly in popularity since the start of 2020, with both their user bases and volumes growing at an accelerating pace. The sector is currently being driven by so-called “automated market makers,” or AMMs.
In a nutshell, these exchanges do away with the traditional order book and custom price orders. Instead, an asset’s price is determined by a mathematical formula that depends on the relative share of the assets in liquidity pools. When a user transacts, this changes the balance of assets in the pools and results in the price moving slightly higher or lower. This mechanism lets AMMs follow the price movements of the market.
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Written By: Cointelegraph
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