In the last article, we talked about how retail users can also engage in market making via CoinEx’s AMM function and provide liquidity for the platform while earning profits. Unlike CoinEx market makers who are required to record a monthly trading volume of $5 million, retail users only need to hold $200 to earn AMM profits. That said, what makes AMM stand out from the many CoinEx products and gain the recognition of millions of global users?
On CoinEx, AMM markets have the following features:
I. Yield from automated market making
After users provide liquidity in an AMM market, the funds will be deposited into the liquidity pool for automated market making, and 50% of the transaction fees traders paid in this market will be distributed to all liquidity providers according to their liquidity share in the pool. For example, if an AMM market charged $1,000 in transaction fee on a day, CoinEx will distribute $500 to all liquidity providers in the market.
II. Cumulate profits daily and withdraw all at once
The AMM profits are calculated daily and will be automatically allocated to your Market Making Account before 4:00 (UTC) the next day, and you can receive the cumulated AMM profits when removing liquidity from the pool.
III. Free access, free of charge
Assets between Spot Account and Market Making Account can be transferred in real-time by adding and removing liquidity, and no fees will be charged during the operation.
Generally speaking, your AMM revenue mainly comes from the transaction fee dividends allocated by the platform. All users who provided liquidity to the pool will gain 50% of the trading fee generated in the market. Furthermore, the ratio is 100% for all CET trading AMM markets! In other words, if a CET trading AMM market charged $1,000 in transaction fees on a given day, all $1,000 will be allocated to liquidity providers in the market.
How does CoinEx calculate the AMM profit earned by a single user? Let us find out through an example:
Assuming that the transaction fees generated in an LBC/USDT trading market on a certain day are 100 USDT and 400 LBC, if User A holds a 10% liquidity share in the LBC/USDT fund pool, then he/she would receive an AMM profit of 5 USDT and 20 LBC. The equations are as follows:
(1) USDT：100 * 50% * 10% = 5 USDT
(2) LBC：400 * 50% * 10% = 20 LBC
If the market is replaced with a CET trading AMM market, then the ratio would be upgraded from 50% to 100%. Assuming that the user provides liquidity in a CET/USDT market, if the market charged 100 USDT and 400 CET in transaction fee, User A would get 10 USDT and 40 CET if he/she holds a 10% liquidity share in the pool.
(USDT: 100* 100% * 10%=10 USDT, CET: 400 * 100% * 10%=40 CET)
Of course, AMM is also subject to risks. After the assets in your Market Making Account are added to the liquidity pool for automated market making, impermanent losses might occur when the price fluctuates. The term “impermanent loss” refers to the temporary loss caused by market swings when a liquidity provider (LP) adds liquidity to a pool under an AMM environment. According to the pricing mechanism AMM, when an LP removes liquidity, the value of the assets he/she withdrew might be lower than that of the assets he/she provided as liquidity. This change in value is known as the impermanent loss.
It should also be noted, however, impermanent losses are common in the early stage of market making or when AMM is affected by unilateral market conditions. As you earn more profits despite price swings, impermanent losses will gradually be eliminated, which will bring you impressive returns
That said, how is the APY of AMM markets on CoinEx? In the case of the UMEE/USDT trading AMM market, the 7-day APY reached 1,107.73% as of 3:00 (UTC) on February 17, 2022 (the example should not be relied on as investment advice).
In conclusion, the secret to the continued popularity of CoinEx AMM lies in its low threshold (all users holding $200 in assets can participate in AMM on CoinEx) and high returns.