⚖️Automated Market Makers

A brief overview on AMMs

Automated market makers (AMMs) are a well-established concept that was introduced to the crypto market back in 2018. These innovative systems enabled users to buy and sell on-chain tokens on Ethereum in a more efficient way than traditional order-book-based markets. By allowing liquidity providers to deposit liquidity only once, AMMs eliminated the need for constantly placing and canceling orders, while smart contracts managed the position for them. Moreover, they provided a single interface for buying and selling, enabling greater composability. This flexibility has made AMMs highly versatile, enabling yield farming, liquidations, rebase mechanisms, and other applications to be built on top of them. Unlike order book systems, which rely on a centralized service provider to store live orders, AMMs are completely decentralized and resistant to censorship.

Despite the advantages of AMMs, the non-fungible nature of NFTs has made it challenging to apply these systems to the NFT ecosystem. As a result, traditional order-book-based markets remain the dominant platform for NFT trading. Although it is difficult to create an automated system that can accurately price each NFT for trading, the benefits of a more gas-efficient trading system, a more composable liquidity representation, and a more censorship-resistant marketplace make it worthwhile to pursue an AMM solution for NFTs. In the following sections, we will outline our proposed solution to this challenge.