How does Polymarket's AMM work?

Polymarket's Nested AMM model, featuring order book aggregation and slippage protection, enhances liquidity and decentralization in prediction markets, ensuring efficient and user-friendly pricing prediction.

Feb 07, 2025 at 09:12 am

Key Points

• Polymarket is the world's largest prediction market; it has built a unique Nested AMM model that features high efficiency and low slippage.
• Key special features of Polymarket's AMM: Nested AMM, order book aggregation, slippage protection.
• The AMM of Polymarket is quite user-friendly: no need to deploy smart contracts; support for single-token liquidity mining.
• Polymarket's AMM enhances the liquidity of pricing prediction in a decentralized manner.
• Polymarket supports on-chain and off-chain data feeds to make sure the betting market has sufficient information.

How does Polymarket's AMM work?

1. Nested AMM

Traditional Automated Market Makers (AMMs) like Uniswap use a constant product formula: x * y = k, where x and y are the liquidity of the two tokens and k is a constant. This formula, however, does not fully capture the relationship between price and market depth, and thus may result in high slippage.

Polymarket's Nested AMM, on the other hand, uses a curve that adapts to the market depth. This curve is constructed by a series of nested constant product AMMs, each with its own liquidity and price range. When a trade is executed, it is routed through the most efficient AMM for that particular price and liquidity.

2. Order book aggregation

Polymarket's AMM also aggregates orders from multiple sources, including its own order book and external DEXs like Uniswap and Sushiswap. This aggregation ensures that traders always get the best possible price for their trades.

3. Slippage protection

Polymarket's AMM features a unique slippage protection mechanism that guarantees that traders will never experience more than 1% slippage on their trades. This is achieved by using a combination of the Nested AMM and order book aggregation.

4. User-friendly

Polymarket's AMM is designed to be user-friendly and easy to use. Traders do not need to deploy any smart contracts or manage their own liquidity. They can simply deposit their tokens into the AMM and start trading.

5. Liquidity mining

Polymarket's AMM supports single-token liquidity mining. This means that traders can earn rewards for providing liquidity to the AMM, even if they only have one token.

How does Polymarket's AMM support the use of prediction markets to operate in decentralized pricing prediction?

1. Enhanced liquidity

Polymarket's AMM greatly enhances the liquidity of prediction markets. This makes it easier for traders to enter and exit positions, and reduces the risk of slippage.

2. Decentralized

Polymarket's AMM is decentralized, meaning that it is not controlled by any single entity. This makes it more resistant to censorship and manipulation, and ensures that traders have a fair and transparent market.

3. Data feeds

Polymarket supports both on-chain and off-chain data feeds. This ensures that the prediction market always has access to the latest and most accurate information.

FAQs

Q: What are the advantages of using Polymarket's AMM?

A: Polymarket's AMM offers a number of advantages, including:

• High efficiency and low slippage
• User-friendly and easy to use
• Support for single-token liquidity mining
• Enhanced liquidity for prediction markets
• Decentralized and resistant to censorship and manipulation
• Support for both on-chain and off-chain data feeds

Q: How can I use Polymarket's AMM?

A: To use Polymarket's AMM, you can follow these steps:

1. Go to the Polymarket website.
2. Create an account.
3. Deposit tokens into the AMM.
4. Start trading!

Q: What are some of the risks associated with using Polymarket's AMM?

A: Some of the risks associated with using Polymarket's AMM include:

• The risk of impermanent loss.
• The risk of smart contract bugs.
• The risk of market manipulation.

It is important to understand the risks involved before using Polymarket's AMM.