↔️ Automated Market Maker
Last updated
Last updated
At its core, Monoswap works by creating single token liquidity pools, which can then be used as the infrastructure for different DeFi products and services. This is achieved by grouping deposited tokens into a virtual pair with the vUNIT stablecoin.
For our first product, the AMM users deposit Token A into the liquidity pool where it is grouped into a virtual pair with the vUNIT stablecoin.
The trading process works just like Uniswap’s AMM constant algorithm by adhering to a price curve: when a token is bought, its price goes up; when it’s sold, its price goes down. The price is initially set by the first liquidity provider/pool creator.
vUNIT is represented as a balance within the pool. The balance starts at 0, however it can increase or decrease based upon Token A’s trading activity (being bought or sold).
Token A is bought - vUNIT balance increases
Token A is sold - vUNIT balance decreases
However, for trustless listing pools, the vUNIT balance cannot go below 0. This acts as a safeguard to protect users from rug pulls and scam token listings (you can find out more in the trustless listing pool section).
The swapping process works exactly the same as a paired liquidity pool.
In each pool, Token A is paired with vUNIT. Exchanging Token A with Token B works by swapping Token A to vUNIT and then from vUNIT to Token B.
This means that every trade is always the same 0.3% fee, and there are never more than two swaps taking place like in paired liquidity pool AMMs.
The changes in the vUNIT balance (+ or -) from the starting price initially set when adding liquidity form the pricing curve we are all familiar with.
Trading works exactly the same as all major DEXs/AMMs.
As a trader, all you need to do is connect your web3 wallet to the Dapp and then select the ERC20 token that you wish to buy/sell.
After choosing the token, you need to enter an amount, then sign the transaction.
We will be releasing tutorials for newbies soon!
