An automated market maker or AMM is a platform that allows users to process crypto transactions. Of course, there are certain platforms that offer a wider variety of services than just that. In simple terms though, that’s what an AMM mostly offers. One of the main differences between an AMM, and a traditional crypto exchange is that in an AMM the price for the cryptocurrency is set by the platform. In an exchange, it’s more of a bidding process. If you want to buy Ethereum for example you can look at the different prices that the currency is being offered.
It could be said that an AMM operates very much like a traditional currency broker. Particularly, because its business is to buy cryptocurrencies, and then exchange them for other pairs. Again, that’s just one of the many services if you will, that an AMM can offer. What are the benefits for users of processing transactions through an AMM?
Benefits of Using An AMM
We’ve mentioned that you lose the bidding process that was originally part of traditional exchanges. There are people who may not be fond of the idea. That’s probably because their core business was buying low, and selling high. That’s still something that can be done through trading or these typical exchanges. With an AMM what you get is a faster transaction process. Part of using an AMM, and in fact a stablecoin, AMM platforms offer for these transactions is to mitigate losses from potential fluctuations in the price of a crypto asset.
When you’re using a platform to settle some type of buying transaction you can keep the agreed price tag on the asset firm. Without much “slippage”. Slippage is that variation in the price of an asset. That can happen between the time that the deal is agreed upon, and the moment that the deal is actually finalized. With a stablecoin, particularly one pegged to a very steady asset you won’t have to deal with many of these issues. In many ways, you are getting the stability of the USD for example. With the benefits that you can obtain from processing a transaction through the blockchain. That’s why we mention that an AMM is a platform that can benefit even folks who aren’t necessarily crypto nuts!
Stablecoins In AMM Platforms
Many stablecoins in AMM platforms are used as the platform currency. In an effort to have more control over the transactions that are taking place on the platform. As we mentioned before, this is also a way to prevent slippage. If a deal was finalized at a certain price point it should stay within that same value frame. Even if the price of an asset stumbles in the amount of time that it takes for a deal to be finalized.
At the end of day an AMM can be a platform where all sorts of transactions can be processed. The people who process their transactions can access the benefits of using cryptocurrencies for large money deals. While having access to different financial instruments that AMM platforms also offer.