Part 1: A brief overview of 1st generation AMMs

Prices of assets in the pool are algorithmically determined using the Automated Market Maker (AMM) algorithm. AMM works by maintaining a Constant Product based on the amount of liquidity on both sides of the pool. Let’s continue the ETH-DAI liquidity pool example, using 100 ETH and 20,000 DAI. To calculate the Constant Product, Uniswap will multipl

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On the other hand, liquidity pool DEXs such as Uniswap and Balancer lets users become the market makers by providing liquidity to a pair or pool of assets. Users deposit their assets and become liquidity providers, earning a small fee for each swap transaction performed for that particular pool. However, the mechanisms behind these types of DEXs, w

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Uniswap looks a lot like Bitcoin in the sense that the functions traditionally performed by a company or its employees can now be performed by anyone!

Liquidity Pools Liquidity pools are token reserves that sit on Uniswap’s smart contracts and are available for users to exchange tokens with. For example, using the ETH-DAI trading pair with 100 ETH and 20,000 DAI in the liquidity reserves, a user that wants to buy ETH using DAI may send 202.02 DAI to the Uniswap smart contract to get 1 ETH in retu

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