ULTRADE’s haAMM is about to launch on the Ultimate Trading Suite’s Testnet, revolutionizing DeFi trading for Web3 businesses, brands, and communities. Discover how this innovative technology works and how it will change the game for decentralized trading.
At present, over 85% of cryptocurrency trading occurs on centralized exchanges, which share a common feature of retaining control of users’ assets. Although these exchanges offer varying user experiences, they pose a similar risk of custodial mishandling. In 2022, prominent centralized trading platforms experienced failure and consequently lost user funds, highlighting the dangers of relying on third parties to manage one’s assets. As the saying goes, “Not your keys, not your coins.”
Decentralized trading through the Automated Market Maker (AMM) model is gaining momentum empowering traders to retain custody over their assets. The popularity of Decentralized Exchanges (DEXes) is on the rise due to the AMM model, with Forbes finding in late 2022 that “trading volume at decentralized exchanges (DEXs) already reached $91 billion in November, a 79% increase over all of October.”
ULTRADE’s Full Trading Suite offers businesses the solution to provide their users with hybrid AMM (haAMM) trading, an Orderbook DEX, and other advanced trading features. This article delves into the intricacies of AMMs and how ULTRADE’s hybrid AMMs can address specific issues of traditional AMMs. It also will highlight the potential advantages of leveraging these different trading tools for your business or community.
How AMMs Work
The Automated Market Maker (AMM) operates as a market maker through algorithms and code, as an alternative to active market makers. Unlike traditional order books that display visible buy and sell orders, AMMs function without an order book. Instead, they calculate prices through a liquidity pool, which can be visualized as a container comprising two or more assets. AMMs enable users to establish a liquidity pool with any token pair at a 50/50 ratio.
Why are AMMs Important?
As a user, you can use AMMs knowing you have control over your assets. As a project or a platform, you can launch a token on an AMM and guarantee your community self-custody. One common challenge for DEXes is extreme price volatility, particularly with low liquidity. Therefore, launching a token on an AMM has the risk of early downward price pressure and high volatility, damaging community sentiment early on.
ULTRADE will enable brands to self-list their own tokens on ULTRADE’s orderbook DEX. This solution offers more price stability as traders can select limit orders in an orderbook DEX and complete a trade without price slippage. Moreover, the self-list functionality on ULTRADE will not have any of the exorbitant six or seven figure listing fees that CEXes currently charge. It will cost nothing to self-list on ULTRADE. And token projects will capture the lion’s share of trading fees!
AMM Impermanent Loss (IL)
Another essential thing to understand concerning providing liquidity to DEXes is impermanent loss. In the case of Uniswap, anyone can provide liquidity to any liquidity pool. The advantage of depositing into a liquidity pool (LP) is that you get LP fees; in the case of Uniswap, it is 0.3% of trading fees. An impermanent loss occurs if the net difference between the value of two token assets in a liquidity pool increases. So if prices are volatile, liquidity providers can experience a loss. The loss is not necessarily permanent as the prices can recover and rebalance, hence the term impermanent loss.
AMMs VS Orderbook DEXes
Both approaches have different tradeoffs. AMMs have the benefit of presenting liquidity for otherwise illiquid pairs. Challenges of AMMs include; impermanent loss for LPs, high slippage risk for large orders if liquidity is low and high price volatility. The orderbook DEX model helps mitigate the above problems significantly. Traders can select limit orders in an orderbook DEX and complete a trade without price slippage.
In addition, orderbooks are already widely adopted by institutional and retail investors, so the user experience is more familiar for many. However, this model relies on an active market maker to provide liquidity. For voluminous assets like Bitcoin and Ethereum, the orderbook model facilitates the majority of trading. For low liquidity tokens, the AMM can help users get the best price.
The ULTRADE Ultimate Trading Suite will offer a haAMM and an orderbook DEX for businesses, brands, and platforms. ULTRADE’s built-in shared liquidity model means that its orderbook DEX will have inherent network effects. Every Whitelabel project will immediately have access to all liquidity pairs from all the other Whitelabel projects on the platform.
ULTRADE’s Hybrid AMM (HaAMM)
ULTRADE’s hybrid AMM model is one-of-a-kind and unique globally. While retaining some characteristics of the AMM, ULTRADE’s haAMM has undergone significant optimizations that give users control over prices. The alpha version of the AMM is presently operational on the ULTRADE Testnet, and Whitelabel partners can test it immediately.
Additionally, the haAMM will integrate an aggregator, combining standard pair liquidity pools and orderbook directional liquidity. Initially, the Algorand ecosystem’s trades will be aggregated to assist users in finding the best available prices. The Algorand trading platforms that will be aggregated in V1 include the following:
- Humble
- Tinyman
- Algofi
- Pact
- ULTRADE’s own AMM pools and later also include our orderbook liquidity
Summary
The introduction of AMMs has opened up new opportunities for decentralized trading in DeFi, allowing traders to retain control over their assets without relying on third parties. ULTRADE’s B2B Whitelabel model will offer DeFi-as-a-Service, enabling businesses to provide their communities with advanced trading tools, shared liquidity, and trading fees. The new haAMM on the ULTRADE Testnet can be played with very soon! Follow our Telegram and Discord channels to be part of the community and get 24/7 community support.
About Ultrade
DeFi-as-a-Service: Full-featured DeFi trading ecosystem giving brands, projects, and communities the ability to generate and capture trading fees from their audience in an owned experience.
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