ElasticSwap — AMM 101

What exactly is an AMM (Automated Market Maker) and how does it work?

In short AMMs are decentralized exchanges that pool liquidity from their users.

Tokens are priced within the pool using algorithms and generally rely on the equation x*y=k where x is the balance of token x and y is the balance of token y and K is always constant. The exact mechanics vary from exchange to exchange, but generally, AMMs offer deep liquidity, low transaction fees, and efficient pricing. As users swap tokens, the AMM automatically re-balances ensuring the constant K is always the same.

When decentralized exchanges first came to be, they were basic peer to peer platforms where users could exchange tokens. Of course, that works so long as someone has the token you want to buy. AMMs allowed for an automated system, meaning that someone who had a token didn’t need to sell it, but could instead provide liquidity to a pool and an algorithm maintains balance in the pool as people swap the underlying pair. The deeper the liquidity, the less volatility (slippage) in the price.

ElasticSwap is the first AMM to specialize in elastic supply tokens, which you can read about here.

Thank you for reading!

-Loki_VT

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Discord discord.gg/elasticswap

Website https://www.elasticswap.org

Twitter @elasticswap

Github https://github.com/elasticswap

Audit Report https://code4rena.com/reports/2022-01-elasticswap/