Understanding AMMs exchanges | Maiar exchange

AMMs seen as an Abacus

How do AMMs work ?

Automated Market Makers is a term that is widely known by the wide crypto community, but very few actually know what is under the hood and how the engine evolved over time. This in turn is great, as it showcases that AMMs have abstracted the underlying complexity away and with the help of powerful User Interfaces, they managed to make trading cryptocurrencies a seamless experience.

  • The rods of the Abacus : — : as the liquidity providers that enable the movement of the liquidity
  • The beads of the Abacus -o-oo- that represents the liquidity, the tokens that are traded on the exchange

1. The body — Liquidity pools

Traditionally exchanges worked with orderbooks, where participants placed or executed orders to trade, but with AMMs users don’t trade against buyers and sellers, but against a pool of tokens — a liquidity pool. At the core liquidity pools are a shared pot of tokens locked in by the users and the price is determined by a mathematical formula.

2. The Rods — Liquidity Providers

Previously exchanges either suffered from a lack of users and thus liquidity was very spread out and also very inconvenient to trade due to the price spikes or they had to use professional market makers that filled the gaps between trader’s orders to ensure a smooth trading experience.

3. The beads — Liquidity

Liquidity is often referred to as the ability to exchange an asset for another without impacting the price substantially. In the context of AMMs liquidity is shared by the users and becomes instantly available in one concentrated pot, which is much more efficient than the spread out orderbook model. AMM exchange’s pairs are represented in the pool by a certain percentage weight and through trading the weights are moving like beads on the abacus and as such amounts and prices are being tracked upon.

Brief History of AMMs

Bancor — Uniswap — Balancer

A new chapter: Maiar Exchange


“The ability of any kind of value to become digital, liquid, instantly, and globally tradeable will give the world economy superpowers. Literally.” — elrond.com/blog/maiar-exchange

This small detail might unlock a lot of possibilities especially in the NFT and SFT trading field, as Elrond network makes use of smart accounts features that enables individual wallets to have similar functionalities as a smart contract when it comes to token interactions. As such we can truly witness game changing interactions with other types of tokens that enable new kind of trading through the Maiar exchange.

Original source: https://twitter.com/ElrondWarriors

“More Trading Volume > Higher Market Makers (MM) Profits > More Liquidity Provided > Less Slippage & Tighter Spreads > More Trading Volume.” — elrond.com/blog/maiar-exchange-mex-tokenomics

In a further article of the series we will explain how Liquidity providing works and how the LP incentives for the maiar.exchange are structured.

The conclusion

AMMs are something very complex due to the clever way they solve the problem of liquidity, which involves advanced mathematics and smart contracts. But they have achieved major adoption due to the way the User Interface was developed, which simplified the trading process to the core and as such it made it available for everyone to exchange assets seamlessly and in a decentralized manner.

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