If you stay in the crypto trading market long enough, you'll eventually notice a very magical phenomenon: in a decentralized exchange (DEX), you can always buy the token you want, and you can always sell the token you want. Even stranger — you're not actually trading with “a specific person.” Although you never wait for a counterparty, and no one is placing limit orders for you, something magical happens: once you click “trade,” a price appears instantly, and settlement happens on-chain immediately. So here come the questions: Who is matching these trades? Who provides the quotes? Why can a completely unattended DEX operate 24/7? How does it determine the price? Why does the price rise the more you buy during a bull market for tokens like X2Y2, UNI, PEPE? Why can someone earn fees just by depositing liquidity? Why do others say “LPs lose money” because of something called “impermanent loss”? The core answer to all of these questions points to one term: AMM (Automated Market Maker). Today, we’ll explain AMM thoroughly — from the underlying logic to its limitations to its future trajectory — in the most understandable way possible. Imagine Crypto Trading from 2014–2017 Back then: If you wanted to trade tokens, you had to use a centralized exchange (CEX). Trading fully depended on an order book. No one posts a sell order? You can’t buy. No one posts a buy order? You can’t sell. The typical matching method was: Buy orders: how much someone is willing to pay Sell orders: how much someone is willing to accept The exchange system matches them This is the order book model, and it had many problems: ❌ 1. Liquidity was fragmented — if no one placed orders for a new token, it simply had no market. Therefore, in decentralized exchanges, the order book model simply does not work because: On-chain matching is too expensive Posting orders is too slow Updating order books on-chain is extremely inefficient So AMM was born — and with one simple idea, it overturned the entire trading model: A counterparty is no longer needed. You trade against a “liquidity pool.” Essential Things About AMM The breakthrough invention of AMM was combining all tradable assets into a single pool. For example, in an ETH/USDT liquidity pool: Person A deposits ETH Person B deposits USDT Person C deposits both ETH + USDT Person D only wants to earn fees and also deposits both tokens All contributions form a shared inventory called a liquidity pool (LP Pool). If you want to buy ETH, you deposit USDT into the pool, and the pool gives you the equivalent amount of ETH at the current price. If you want to sell ETH, you deposit ETH into the pool, and the pool gives you USDT at the current price. Something magical happens here — as a trader, you realize: No need for a counterparty No need for order placement No need for a market-making team No waiting at all The pool is your counterparty. And the more trading happens, the more the pool earns because fees are distributed to all LPs proportionally. This is why AMM trades execute instantly. 2. The Soul of AMM: x * y = k Uniswap used an extremely simple formula that changed the entire industry: TokenA_amount × TokenB_amount = constant_k Example: Suppose an ETH/USDT pool is initialized with:100 ETH = 100,000 USDT，Initial price = 100,000 / 100 = 1,000 USDT/ETH.Thus k = 100 × 100,000 = 10,000,000 If you buy 1 ETH from the pool, ETH decreases to 99, and to maintain x*y=k, USDT must increase to around 101,010.1. This causes the price of ETH to rise slightly.The more aggressive the trading, the more drastic the price moves. This results in the classic effects: “The more you buy, the more expensive it gets” This is also why AMM prices adjust automatically. How Does AMM Make Money? — Fees + MEV + Arbitrage AMMs replace traditional market makers with automated algorithms, allowing anyone to deposit liquidity and become an LP, earning fees and on-chain incentives. But why can AMMs run sustainably? There are three engines: Trading Fees MEV Capture Arbitrage-Based Price Realignment Let’s break them down. 1. Trading Fees — The Primary Source of LP Income Most AMMs (Uniswap v2/v3, PancakeSwap, Curve) charge a fixed percentage fee: 0.3% (most common) 0.05% (stablecoin pools) 0.1% (some lightweight AMMs) These fees do not go to the platform — they go entirely to LPs. Meaning: The higher the trading volume, the higher the LP returns. If a pool has $20M in daily trading volume, with a 0.3% fee: LP Daily Revenue = $20M × 0.3% = $60,000 Thus, AMM’s ceiling depends heavily on volume + liquidity depth. 2. Arbitrage: The Invisible Engine That Keeps AMM Prices Accurate AMM prices are algorithmic and may diverge from external markets. Arbitrage traders fix this: If ETH price in AMM is lower than CEX → buy in AMM, sell on CEX Arbitrage results in: ① AMM prices require no manual maintenance. This is why DeFi works — arbitrageurs maintain fairness and balance. To attract more liquidity, many AMMs also provide additional incentives: platform token rewards liquidity mining staking rewards ecosystem airdrops This forms a flywheel effect: Liquidity → Better trading → Higher volume → Higher fees → More LPs Summary of AMM Revenue Sources (1) Trading Fees — Stable base income SuperEx Free Market AMM The SuperEx AMM automatically calculates bid/ask prices and provides continuous quotes. AMM is the core technology powering DEXs such as Uniswap, SushiSwap, and Curve. What Makes AMM Different from Traditional Market Making? Traditional: Provided by professional market makers using complex strategies Traditional: Based on order books Traditional: Can dry up during volatility Traditional: Best for CEX, high-frequency, complex orders Traditional: Only market makers earn With SuperEx AMM, You Can Earn Fees in Just 3 Steps Log into SuperEx Select your token pair Deposit tokens + USDT into a liquidity pool No large capital, no APIs, no professional team required — anyone can become an LP in under 1 minute. Appendix: AMM Glossary (20 Terms) AMM — Automated market maker LP — Liquidity provider k-value — Constant in constant product formula Slippage — Difference between expected and actual execution price Impermanent loss — Temporary loss from volatile price movements Liquidity pool — Smart contract holding token pairs Stablecoin pool — Low-slippage pool for pegged assets Liquidity mining — Token rewards for providing liquidity Price oracle — External market price feed Concentrated liquidity — LPs provide liquidity only within chosen price ranges Dynamic fee — Fee adjusts automatically based on volatility Token pair — Two assets in a liquidity pool Cross-chain AMM — AMM supporting assets across multiple chains Perpetual AMM — AMM integrated with derivatives pricing Aggregated trading — Routing through multiple AMMs for best execution Capital efficiency — Liquidity utilization across price ranges MEV — Miner Extractable Value RWA — Real-world assets tokenized on-chain Protocol-Owned Liquidity — Liquidity owned by the protocol itself Impermanent gain — When impermanent loss reverses into profit if prices revert Conclusion: AMM Reshapes the Boundaries of Finance AMM freed blockchain trading from human limitations and redefined the nature of “markets.” It hands trust to code, pricing to algorithms, and liquidity to the participants. In traditional markets, market makers are few; This is the beauty of decentralized finance (DeFi) — everyone can become part of the market, and everyone can empower liquidity.
❌ 2. Market-making was expensive, requiring professional market makers to maintain buy and sell depth.
❌ 3. Markets could be manipulated easily, with tricks like “pulling the plug,” flash crashes, fake order spoofing, etc.
❌ 4. Everything was stored in centralized exchanges, so users had no true asset ownership and security was limited.1. The Core Magic of AMM: The Liquidity Pool
This is the Constant Product Market Maker model.
“The more you sell, the cheaper it gets”
Where does “profit” actually come from?
If ETH price in AMM is higher than CEX → buy on CEX, sell in AMM
② Arbitrageurs act as natural market makers, ensuring the system stays stable long-term.3. LP Incentives — Extra Earnings Beyond Fees
(2) Arbitrage — Keeps pricing fair, enabling more trading
(3) Incentives — Boosts LP returns
SuperEx combines AMM + order book, converting liquidity pools into an order book to deliver a superior trading experience.1. Liquidity Provision
AMM: Anyone can deposit liquidity and earn fees2. Pricing Mechanism
AMM: Based on algorithmic formulas (e.g., x * y = k)3. Liquidity Efficiency
AMM: Always available, though shallow pools cause slippage4. Use Cases
AMM: Best for DEX, lowering participation barriers5. Profit Distribution
AMM: Anyone can earn as an LP
in an AMM world, everyone can become a market maker.
