Automated Market Maker (AMM) vs Order Book

In traditional marketplaces, a central limit order book is the norm, where buyers and sellers align their orders by price levels, culminating in a gradual fulfillment as market demands fluctuate. This system, familiar to those accustomed to stock trading via brokerage firms, sets the standard for conventional exchanges.

Savmswap, however, embarks on a different path with its Automated Market Maker (AMM) model, also known as a Constant Function Market Maker, supplanting the traditional order book. At its core, the AMM system substitutes the typical buy and sell orders with a liquidity pool comprising two assets, each valued about the other. Trading one asset for the other shifts their relative values, thus recalibrating the market rate for both. This mechanism allows traders to interact directly with the pool rather than with specific orders from other participants. The merits and challenges of AMMs, in contrast to traditional order books, are the subject of ongoing study and debate, with numerous significant insights gathered on our research page.