![]() And these tokens are provided by users, often the same users who are trading on the exchange. This is where the liquidity for the exchange comes from. The AMM replaces counterparties with a smart contract that stores a pool of tokens. In centralized exchanges the exchanges search for a counterparty for each trade, thus setting the price based on the counterparty’s asking price. The AMM is different from centralized exchanges in a number of ways, but the most prominent is the way in which they price the tokens listed on the exchange. This should even the playing field for everyone involved in the markets. DODO is looking to improve on this by minimizing both impermanent loss and slippage, while doing away with the need for arbitrageurs to make their PMM model work.ĪMMs are seen as superior to centralized exchanges because they do away with control over the exchange by a single entity. All include impermanent loss risks, slippage, and the use of arbitrageurs to create a functioning decentralized exchange. Why is AMM inferior as a DEX protocol? Image via Īn examination of Uniswap will give us a basic understanding of how automated market making works, but more importantly we will see the shortfalls inherent in the design of AMMs. For example, Kyber, Curve, and Bancor all use the same AMM model in creating an exchange. We will use Uniswap as the model for AMM-based decentralized exchanges throughout this review, although we do understand that many others exist. The remainder of this review will discuss the details around DODO, but first we’ll start off with some background that will help to highlight where DODO is making the most impactful changes and how it will improve the decentralized exchange ecosystem with its novel PMM technology. This benefits users by creating an exchange with very little slippage, as well as mechanisms that reduce impermanent loss to the minimum possible. ![]() With DODO Exchange there is always sufficient liquidity for every trade, just like you’d traditionally find in centralized exchanges. The second generation LP tech is here, creating on-chain, contract-fillable liquidity for all users. When you compare PMM side-by-side with AMM it is clear that an improvement has been made to a first generation attempt at creating a decentralized exchange. DODO Exchange OverviewĭODO is created on the Ethereum network and it appears to be the next generation exchange when it comes to on-chain liquidity providing (LP). The PMM model is capable of responding to liquidity constraints in real time, as well as adapting to changing market conditions. It is meant to replace the Automated Market maker (AMM) model that’s used by Uniswap and most other decentralized exchanges. That unique new market maker algorithm has been coined Proactive Market Maker (PMM) by the folks at DODO Exchange. It’s doing that be attempting to eradicate impermanent loss, and improve liquidity by using a unique market making algorithm. ![]() Well now that’s a distinct possibility as the DODO Exchange is looking to take market share from Uniswap by actually improving on its problems. If there were an exchange that could rectify the problems that Uniswap has rather than copying them, maybe we would see some evolution in the space. Which is a shame, because Uniswap is certainly not perfect. Decentralized exchanges keep popping up, but so far none have been able to overtake Uniswap as the top decentralized exchange.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |