Thanks to the significant growth of decentralized finance (DeFi) in recent years, many DEXs have been created to fix problems that have always characterized centralized exchanges (CEXs), such as hacks and malicious operations, lack of privacy, deposit limits, intermediary issues, trust, and high fee costs.
This article focuses on the differences between order books and automated market makers and whether it is worth having a market of only liquidity pools or should not leave out the order book model.
What is a liquidity pool and how does it work?
Liquidity pools support the DeFi ecosystem and are essential to automated market makers (AMM). A liquidity pool is a set of funds locked in a smart contract. These pools facilitate decentralized trading and lending and are the pillar of many decentralized exchanges (DEX).
Users that take part in the Liquidity pools, also known as liquidity providers (LPs), add an equal value of a pair of tokens in a pool to…
