Order Book Market vs AMM Market
Order Book Market
An order book is a real-time ledger of buy and sell orders for a particualr market. Our platform's matching engine decides order execution based on price-time priority rule. Market orders execute immediately at best available price; limit orders wait in the book until matched or canceled.
AMM Market
Our prediction markets support Automated Market Makers (AMMs) based on the Constant Product Model (x * y = k) to enable decentralized trading of binary outcomes (e.g., "Yes/No" or "For/Against"). Each market has two outcome tokens (e.g., YES and NO), and the AMM pool holds reserves of both. The product of the reserves (YES_reserves * NO_reserves = k) remains constant, ensuring liquidity.
1. Buying Outcome Tokens
Step 1: Split collateral (e.g., USDC) into equal amount of both outcome tokens (1:1 ratio). Example: $10 USDC → 10 YES + 10 NO.
Step 2: Swap the unwanted outcome tokens (e.g., NO) for the desired tokens (YES) via the AMM pool. Final Amount: The sum of the desired tokens splitted + tokens bought from the swap = total YES tokens purchased.
2. Selling Outcome Tokens
Step 1: Swap a portion of the held tokens (e.g., YES) for the complementary outcome (NO) in the AMM pool.
Step 2: Merge the remaining held tokens (YES) and the newly acquired NO tokens back into USDC (1:1).
Why AMM does not support limit orders
AMMs like the Constant Product Market Maker (CPMM) used on our platform fundamentally differ from order book-based systems, which is why they do not natively support limit orders. They replace order books with algorithmic liquidity pools.
1. The price in an AMM changes with every trade. A "limit order" would require a static price point, which contradicts how AMMs work.
2. There is no pending orders mechanism for AMMs. AMMs only execute trades immediately at the current pool-determined price. however, in an order book, a limit order sits idle until the market hits its price.
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