Unpacking The Matrix: Automated Market Makers and Elephant Money Zion.
In my last article, “Decentralized Finance and For the Love of Elephant”, I explained that traditional banking relies on trust while Decentralized Finance (DeFi) relies on transparency. This basic concept of Trust vs. Transparency is not the entirety of why DeFi will become the leading financial vehicle of the future. To catch you all up… you will need a brief history lesson. Bear with me… by the end of this blog post you’ll understand three key points….
“You take the blue pill… the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill… you stay in Wonderland, and I show you how deep the rabbit hole goes.” — Morpheus, The Matrix
Below is the red pill. This knowledge will unlock the Defi Matrix. Are you ready Neo?
Three Key Points:
1. What is an Automated Market Maker (AMM) and why is it important.
2. What is the Constant Product Formula and how does it relate to AMMs?
3. What does this have to do with Elephant Money?
Automated Market Maker: “I know Kung Fu”
Automated Market Makers (AMMs), were first introduced in 2017 by a group of developers from Ethereum, involving Vitalik Buterin, the founder of Ethereum, and Dr. Gavin Wood, the co-founder of Ethereum. The first AMM was Uniswap, which launched in November 2018, and gained popularity among traders due to its simplicity and ability to provide liquidity for new tokens. Since then, AMMs have become a fundamental component of Decentralized Finance (DeFi), allowing traders to buy and sell tokens without the need for a centralized exchange.
Now we are getting somewhere…
It’ll be helpful to first understand the difference between Centralized Exchange trading and DeFi. On Centralized exchanges, buyers and sellers submit orders for a particular cryptocurrency at a certain price. The exchange matches these orders and executes trades based on the best available price. This system works well, but it relies on a centralized authority to manage the exchange.
As the name implies, “Decentralized” — A system or organization that does not rely on a single centralized authority or entity to make decisions, is key to transparency being independent from intermediaries.
For instance, ETH/DAI is a liquidity pair on Uniswap, an AMM, because it uses an algorithmic pricing mechanism to automatically adjust the price of a token based on the current supply and demand in the market. This is done by a liquidity pool, which is a smart contract that holds a reserve of two different tokens in a fixed ratio, typically 50/50.
Note: Liquidity Pools can be held on Decentralized Exchanges such as Pancake Swap. Pancakeswap is an Automated Market Maker.
Automated Market Makers are important because these algorithms provide a decentralized way for traders to buy and sell cryptocurrencies without relying on traditional order book exchanges.
The Revolutionary Formula: x * y = k
Automated Market Makers (AMMs) have taken cryptocurrencies to a level of finance not seen in the 21th century, until now. But how do AMMs work, and what is the constant product formula that powers them?
AMMs are completely decentralized, as noted above. They rely on a mathematical formula to determine the price of a particular cryptocurrency. The most popular AMM formula is the constant product formula.
Formula: x*y=k
The constant product formula works like this:
An AMM creates a pool of two cryptocurrencies, let’s say Ethereum (ETH) and Dai (DAI).
The pool holds a certain amount of each cryptocurrency, and the product of their quantities is kept constant. So if there are 100 ETH and 10,000 DAI in the pool, their product (100 * 10,000 = 1,000,000) remains constant no matter how many trades are made.
When a trader wants to buy ETH with DAI, they send DAI to the AMM’s pool and receive ETH in return. This increases the quantity of DAI in the pool and decreases the quantity of ETH, but the product remains constant. The AMM calculates the new price of ETH based on the new quantities of ETH and DAI in the pool.
More DAI into ETH / DAI liquidity pool = Higher price for ETH relative to DAI (Price Appreciation)
It’s important to understand the above so you can see why the Elephant Money Token will continue to reach new ATHs.
A liquidity pair that has gained a lot of attention recently is the Elephant/BNB token on PancakeSwap (PCS). Elephant Money Token has the potential to ride up the parabola of price appreciation using the constant product formula. I’m going to tell you WHY!
Elephant Money has a fixed supply of 1,000 Trillion tokens.
Due to its fixed supply, If someone or thing (a smart contract) continues to take Elephant OUT of the LP by placing BNB into the LP, the price of the token will APPRECIATE in value. I think we can all agree on that based on the AMM and Constant product formula above.
What if I told you that within the Elephant Money Ecosystem there is a smart contract that continues to take Elephant out of the LP? (Morpheus Voice)
We call this smart contract the “Elephant Money Treasury”.
The Elephant Money Treasury does this through a variety of ways. The ecosystem is derived of approximately 40 smart contracts which work together to provide a significant store of value for its holder. It does this by taking advantage of the AMM and constant product formula.
As seen above, when you take ETH out of the ETH / DAI liquidity pool by providing DAI. The price goes up for that token.
For Elephant, when you take ELEPHANT out of the ELEPHANT/BNB liquidity pool by providing BNB, the PRICE OF ELEPHANT INCREASES.
Elephant takes advantage of this mechanism by locking up ELEPHANT tokens into the smart contract called: THE ELEPHANT TREASURY (aka Bertha)
1. Every buy, sell, or transfer: 10% of each take Elephant out of the LP (5% go to holders, including the treasury, as reflections / 5% into Locked Liquidity)
2. Every deposit into Futures: 90% of all deposits take Elephant out of the LP and store it into the treasury.
3. Every mint of TRUNK: 100% of all deposits take Elephant out of the LP and store it into the treasury.
All of these mechanisms lock up tokens into the Elephant Treasury which creates more and more scarcity in supply. By locking up a majority of tokens, it produces an inflection point called “supply shock”, where Elephant rides up the parabola of the constant product formula for MASSIVE PRICE APPRECIATION.
Elephant Money Ecosystems Token Supply:
Graveyard (Locked Liquidity): 50.48% or 504 Trillion Tokens
Elephant Treasury: 12.65% or 126.59 Trillion Tokens
PCS EM/BNB LP: 11.03% or 110.38 Trillion Tokens
PCS EM/BUSD LP: 7.66% or 76.62 Trillion Tokens
Elephant Money Ecosystem / Smart Contracts hold over 81% of the supply of the tokens!
Note: All transparent, All on-chain
Based on the tokenomics of Elephant Money you can see that the more tokens locked up into the Elephant Treasury the more the price will appreciate over time. This is what it is designed to do and this is why I am invested in and fully believe in Elephant as a store of value that will continue to appreciate in price.
If you would like to deep dive into the math behind Elephant Money, Bailey From Bailey EMH does a great detailed youtube video on Elephant Money: https://youtu.be/XwgepLYFEVk
If you would like to know more about how to make passive income with Elephant Money utilizing the Futures contract (0.5% /day on BUSD), Crypto Stu article is linked here: https://medium.com/@cryptostu2022/the-future-of-high-yield-savings-with-elephant-money-futures-15f390af540c
- Twitter: https://twitter.com/ElephantStatus
- Telegram: https://t.me/elephant_money
- Discord: https://discord.gg/elephant-money
- Medium: https://medium.com/elephant-money
- YouTube: https://www.youtube.com/channel/UCBHcyR7ixP70R6hhpck1qUQ
Note: This article is not financial advice. Please do your own research before investing in cryptocurrencies.
