How Azomi Works
Azomi is the first DEX (Decentralized EXchange) on the MELD blockchain.
It works similarly to Uniswap v2 on Ethereum, Trader Joe on Avalanche, or Minswap on Cardano. Azomi is based on the AMM (Automated Market Maker) model that relies on a constant product formula to set the price of assets. Unlike traditional exchanges that use order books where buyers and sellers place orders to buy or sell assets at specific prices, Azomi facilitates trades by using liquidity pools.
Swaps and Trading
Traders can swap one token for another directly from the liquidity pool. The transaction adjusts the ratio of the tokens in the pool, thus changing their prices according to the algorithm.
Liquidity Pools
In Azomi, liquidity is provided by users who deposit pairs of tokens into a pool. These liquidity providers (LPs) earn fees from trades that occur within their pool.
Pricing Algorithm
The prices of the tokens in the pool are determined by a mathematical formula, namely the constant product formula xy=k, where x and y represent the quantities of the two tokens in the pool, and k is a constant. This formula ensures that the product of the quantities of the two tokens remains the same before and after a trade. Prices are deterministic. This is a key difference between order books and liquidity pool pricing.
The constant product formula is a graphable function, enabling us to visualize the relationship between X and Y, as graphed below.
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