This market is based on the AMM model, in which users can provide liquidity and receive a fee in return. They can also exchange their assets at the best rates.


Before 2019 and the DeFi boom, blockchain advocates touted the upcoming revolution, but DEXs and networks didn’t have enough liquidity. That lack of liquidity slowed down progress and delayed the emergence of fair decentralized financial platforms.
Users aren’t likely to use a network without sufficient liquidity but to attract liquidity, that network needs to have many users. A classic Catch 22!
On top of that, CEXs offer high speeds and low fees. So, if DEXs want to compete, they need a way to break that vicious loop. The rules of the game changed when UniSwap’s founder Hayden Adams came up with a brilliant solution using one of blockchain’s core features: participation.
Hayden built an automatic market maker protocol using constant functions and an elegantly simple formula: x*y=z.
The protocol allows people to lock their assets into a liquidity pool in exchange for a piece of the trading fees on the DEX. This simple mechanism incentivizes people to contribute liquidity to pools instead of simply holding their assets in a wallet. As the pools grow, the AMM can offer better rates thereby attracting more traders.
However, there’s one major problem: as adoption grows, transaction fees become prohibitively expensive because Ethereum and other blockchains aren’t built to handle a large number of transactions per second, i.e., they’re not scalable. And that’s where Stellar comes in: a purpose-built blockchain for financial operations that is both decentralized and secure.
The AMM in Stellar is built into its core, unlike some smart contract-based networks where the functionality is added by third parties. This structure ensures security and neutralizes many smart contract-related attacks.
Protocol 18 allows all users to enjoy the benefits of AMM.
For these reasons, we decided to build our AMM client on Stellar.
Last modified 1mo ago
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