Order Book VS AMM

• Most publicly accessible markets use a central limit order book style of exchange, where buyers and sellers create orders organized by price level that is progressively filled as demand shifts. Anyone who has traded stocks through brokerage firms will be familiar with an order book system.

• The Pixelswap protocol takes a different approach, using an Automated Market Maker (AMM), sometimes called a Constant Function Market Maker, instead of an order book.

• At a very high level, an AMM replaces the buy and sell orders in an order book market with a liquidity pool of two assets valued relative to each other. As one asset is traded for the other, the relative prices of the two assets shift and a new market rate for both is determined. In this dynamic, a buyer or seller trades directly with the pool rather than with specific orders left by other parties. The advantages and disadvantages of Automated Market Makers versus their traditional order book counterparts are under active research by a growing number of parties. We have collected some notable examples on our research page.