How do decentralized exchanges set prices without an order book?
My understanding: AMM prices are determined solely by the ratio of the two tokens in the pool. When the price differs from that in other markets, arbitrageurs push it back toward the external price.
Liquidity providers deposit both tokens according to the pool’s ratio and earn a share of the trading fees.
My current habit: when swapping on a DEX, I set a slippage tolerance. If it’s too high, sandwich attacks can eat into my trade.
$UNI is the governance token of Uniswap, which popularized AMMs. Currently at 6.812.
NFA—do your own research.
My understanding: AMM prices are determined solely by the ratio of the two tokens in the pool. When the price differs from that in other markets, arbitrageurs push it back toward the external price.
Liquidity providers deposit both tokens according to the pool’s ratio and earn a share of the trading fees.
My current habit: when swapping on a DEX, I set a slippage tolerance. If it’s too high, sandwich attacks can eat into my trade.
$UNI is the governance token of Uniswap, which popularized AMMs. Currently at 6.812.
NFA—do your own research.