As digital assets continue to gain momentum in the mainstream, the question of how cryptocurrencies differ from traditional stocks grows increasingly relevant. While crypto exchanges may share similarities with the New York Stock Exchange (NYSE), there is a key difference that sets them apart: automated market makers, or AMMs.
AMMs are a unique feature of the digital asset realm that allow for decentralized trading without the need for central authorities or intermediaries. Unlike traditional order books, which rely on bids and asks to match buyers and sellers, AMMs use algorithms to determine the price of assets based on supply and demand. This provides a more streamlined and efficient trading experience for users, while also allowing for greater liquidity.
In fact, AMMs played a crucial role in the explosive growth of decentralized finance (DeFi) in 2020, as they offered users a way to trade hundreds of different digital assets with ease. However, as with any new technology, there are also risks involved with AMMs, including the possibility of impermanent loss for liquidity providers.
Despite these challenges, AMMs are continuing to gain popularity in the digital asset realm as more and more traders seek out decentralized trading options. So while it might be easy to draw comparisons between traditional stock exchanges and crypto exchanges, the unique features of the digital asset realm – such as AMMs – offer a glimpse into a new world of decentralized finance.