All content expressed is purely for educational purposes only. This is not financial advice. Do your own research before investing or trading.
AMMs, or Automated Market Makers were first created in the early 1990s to increase liquidity to markets and prevent market manipulation by market makers.
The first “true decentralised AMM” emerged on the scene with the launch of Uniswap in late 2018. While many newcomers to the crypto space are intimidated by the perceived complexity of crypto, the simplistic nature of AMMs have been a strong driving force behind its popularity when it comes to earning yield and could hopefully encourage “no-coiners” to finally invest in their first crypto assets.
For those who don’t know what AMMs are, or need a recap, AMMs are an important tool that decentralized exchanges, or DEXes use to provide liquidity to the exchange. Traditional centralised exchanges on the other hand would be provided with this liquidity from enormous financial institutions such as banks.
This is why they are considered “market makers” because they are the ones who are able to make the trades between buyers and sellers happen. The banks would then profit off of the exchange fees.
This is an extremely lucrative way to earn capital. Unfortunately for the rest of us, we don’t have the luxury of participating in such investments, as most of us don’t have billions of dollars lying around. DEXes realised they could generate enormous amounts of liquidity by providing the option for the retail investor to earn passive income by allowing them to participate in the market making process.
One beneficial consequence of AMMs would be to create a truly decentralized financial market that is run by a decentralized and autonomous group of individuals. This would create a viable alternative to the heavily controlled, corrupted, and manipulated traditional financial system that we currently have.
CoinFLEX understands that the future of finance is decentralised and is making its shift towards decentralization – one example being decentralizing custody and clearing of user assets.
This means you have complete control over when you withdraw funds, where you send it to, who you send it to, how much you withdraw, and why you want to withdraw your assets. This is a refreshing comparison to traditional banks, who interrogate you for simple things like sending money to family overseas or making a purchase with your card that’s not familiar to their tracking system.
CoinFLEX is the first centralised exchange to provide an AMM for their users with it’s product, AMM+. Having both a centralized orderbook as well as an AMM will result in CoinFLEX becoming the largest exchange by liquidity.
The ability to use leverage, thanks to it being connected to the perpetual futures market, and the ability to choose your price range, has allowed users to earn triple and even quadruple digit APRs. Earning these APRs however can be quite tricky. To do so you need to use leverage, which puts you at risk of liquidation, and more importantly you need to figure out where to set your price range.
How to Choose Your Range
您的费用计算方式还取决于您的价格范围的最高和最低价格相对于当前市场价格。 如果您处于“买入”仓位，并且从您进入该仓位时起，您的最高价格高于市场价格，AMM+ 将沿着订单簿的买入仓位平均买入多头仓位，但在订单簿的第一个卖出仓位处卖出。
When deciding a range, it’s important to understand what impermanent loss is and how it can result in you not making as much as you would have if you held, or worse it can result in you losing money.
Impermanent loss is the price difference between just holding your tokens on a wallet versus having it staked as a liquidity provider (LP) in an AMM. Impermanent loss can occur even if your crypto asset increases in value.
For ‘Buy’ if you do not redeem your position at the your entry price or a higher price, you will experience impermanent loss, also known as divergent loss. It therefore may not be a good idea to execute ‘Buy’ positions if you believe the price of the asset will decrease.
For ‘Sell’ positions you will experience impermanent loss if you do not redeem your position at your entry price or lower. It therefore may not be a good idea to execute ‘Sell’ positions if you believe the price of the asset will increase.
For ‘Neutral’ positions, you will experience impermanent loss if you do not redeem your position at the mid price between your max and min range.
You can also counter impermanent loss however if you have earned enough fees to offset the drawdown created by price movement.
The size of your price range will also determine how much you earn off of fees. If you enter a wide price range, your liquidity won’t be as concentrated and therefore less efficient so you won’t be earning as many trading fees if you had a narrower price range.
Remember, if you set your price range too narrow with leverage, and the price of your asset goes outside your range or against your position direction, you will be liquidated.
币飞创造了创新的解决方案，通过直观的收益产品，如 flexUSD(世界上第一个利息收益稳定币)和 AMM+, the most-capital efficient automated market maker in the world. CoinFLEX is backed by crypto heavyweights, including Roger Ver, Mike Komaransky, Polychain Capital, and Dragonfly Capital.
Author: Adam Diaz