Automated Market Makers in decentralized finance and Totem’s Unique Approach

Hello! 👋🏻 In this post, we are going to tell you about an automated market maker for decentralized finance.

📌 Decentralized financing is implemented using smart contracts that are stored on the blockchain and can be activated to automate the execution of financial instruments and digital assets. The immutable property of blockchains ensures that they are also protected from unauthorized access and the content can be publicly audited.

❓ What is an Automated Market Maker?

🤖 Automated Market Maker (AMM) is a type of decentralized exchange protocol that is based on a mathematical formula to determine the price of an asset. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm.

🔹 For prediction markets with huge results space, a continuous two-way auction (where the market maker maintains an order book that tracks bids and requests) can fall prey to the thin market problem.

🏆 The analysis shows that constant circle or ellipse cost functions are the best choice for creating automated market makers in Decentralized Finance (DeFi) applications.

✅ Totem platform’s automated market-making protocol has three important concepts: circulation pools, hybrid constant function market makers, and liquidity mining.

✔️ Circulation pool

The larger the total amount of tokens in the circulation pool, the greater the depth, and the less impact large transactions will have. A single transaction of hundreds of thousands of dollars will not make the overall price fluctuate significantly.

✔️ Mixed constant function market maker

The Totem platform’s automated market maker protocol adopts a hybrid function, which is optimized for stable coins and mitigates trading slippage.

Mixed constant function market maker works as a constant sum function when the portfolio is more balanced, and it converts to a constant product function when the portfolio becomes unbalanced.

✔️ Liquidity mining

The Totem platform does not automatically change prices when external prices change without the intervention of arbitrageurs. The external arbitrageurs’ profit from the spreads between the platform and the external exchange. Users provide liquidity to the platform and deposit spread will lose.

Users suffer the loss of the asset price and lock up the liquidity of the token, yet they gain profits. In addition to commissions for sharing the platform and interest, they can also sell the tokens rewarded by the platform for more profits.

🔥 Hurry up to try out AMM at Totem: http://totprotocol.com/