Decentralised Exchanges & AMMs (Deep Dive)
A closer look at how token swaps actually get priced without an order book.
What you’ll learn
- •AMMs price trades automatically using a formula and a pooled pair of tokens, with no order book required.
- •The 'constant product' model keeps the two pooled token quantities' product mathematically fixed, shifting price as trades change the ratio.
- •Buying pushes a token's price up and selling pushes it down; the size of the move depends on trade size relative to pool depth.
- •'Price impact' is the gap between the pool's quoted price and what you actually pay on a given trade.
- •AMMs can always quote a price if the pool has funds, unlike an order book which needs a matching counterparty.
- •'Slippage tolerance' limits price movement between submitting and executing — too low fails transactions, too high risks worse prices and sandwich attacks.
Full lesson and quiz for subscribers.
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