What is Automated Market Making (AMM)?
Automated market making (AMM) can calculate the buying and selling price according to the formula, so as to provide continuous quotation for the market. CoinEx applies AMM conbimes with order book and the "constant product market maker formula" algorithm in AMM as a trading platform, which characterized in the firm liquidity provision to the market no matter how large the order book is or how small the liquidity pool is.
What is Liquidity Pool?
Assets in the pool are used for market making in AMM. During the trading, the product of the quantity of 2 coins would remain a constant, known as CPMM（Constant Product Market Maker).LP( Liquidity Provider, people who provide liquidity for the asset pool) would gain 60% of the trading fee in the pool. In the AMM market, every trading pair needs an asset pool and that is where the liquidity adding, liquidity removing and trading rule happen. The trading rule stipulates that the product of the quantity of 2 coins should remain a constant, thus, when the quantity of coin A decrease, the quantity of coin B should increase according to the rule A*B= the constant.
Characteristics of AMM
1. Bonus obtainable from automated market making
LP( Liquidity Provider) would gain 60% of the trading fee generated in the pool as return in total . The return of a single LP would depend on the proportion of assets he owns in the pool.
2. Share the profit daily, withdraw the interests together
The interests LP(Liquidity Provider) garners from sharing the trading fee would be calculated on a daily basis, and been credited into the market making account before 4:00 (UTC) the next day. When removing the liquidity, the LP would also withdraw all the interests he obtained altogether.
3. Free access, no charge required
Assets between Spot Account and Market Making Account can be transferred in real time by adding and removing liquidity. Each user in a single market can increase liquidity twice a day, and no fees will be charged during the operation.
Fees and Profit
Market supporting automated market making is an AMM market. Compared with normal market, AMM market adopts an independent fees system. The fees for both marker and taker is 0.3%. VIP and market makers will not enjoy any special fees, and using CET for fees deduction is unavailable. All users are qualified to apply for market makers, and 60% of the market's transaction fees will be rewarded to liquidity providers.
Which markets support AMM?
First batch of markets available for AMM: CET/USDT, LBC/USDT, AYA/USDT, FCH/USDT, TRTL/USDT.
Note: 1. Based on the market situation, we may open more markets in the future.
2. CET/USDT market enjoys 100% of transaction fees generated from the pool, while other AMM markets get 60% transaction fees from each pool.
How would the trading fee be allocated to liquidity providers?
The transaction fee bonus will be calculated once a day and automatically credited into the user's Market Making Account before 4:00 (UTC) the next day.
Example 1: If user(Liquidity Provider) A provides 10% of the assets in LBC/USDT pool, and the pool has gained 100 USDT trading fee that day, so user A would garner 100 * 60% * 10% = 6 USDT as transaction fee bonus.
Example 2: If user(Liquidity Provider) B provides 10% of the assets in CET/USDT pool, and the pool has gained 100 USDT trading fee that day, so user B would garner 100 * 10% = 10 USDT as transaction fee bonus.
The funds in the market-making account will be deposited into the fund pool for automated market-making. There is a risk of impermanent losses when the price fluctuates, and the number of assets may change significantly when removing the liquidity.