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To understand the true power of Astroport it is important to give a brief overview of what an Automated Market Maker (AMM) is so that we can better grasp the new generation of AMM.
What is an Automated Market Maker?
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In traditional centralized markets such as the stock market for example to facilitate trades a stock broker maybe used to pair sellers and purchasers at a price that they can agree on. The position became notoriously popular in the film Wolf of Wall Street which portrayed the enormous amounts of wealth stoke brokers were generating as Middle Men
Decentralised Financial protocols built on block chains removed middle men completely by creating bots that fulfil this position. Instead of engaging with middle men investors can participate in user to user trade with income generated through fees going to liquidity providers that help ensure tokens retain their value and can be traded.
In order for traders to get the best value multiple Liquidity Pools with a range of different assets need to be established to facilitate cheap and effective trades. However, in doing so these pools create disparity between pooled tokens and an arbitrage opportunity is created where people can locate cheaper pools and buy the disproportionately paired target for cheaper and sell to a higher pool.
Why Astroport is the next generation of AMM
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Astroport aims to solve price volatility amongst multiple assets by implementing a number of complex algorithms to balance token price.
One of the ways they will do this is by establishing a reserve as with purchasing a token from a decentralised exchange (dex) when a user makes a purchase or sale they remove one of the other tokens resulting in increased slippage or, less tokens for larger buy orders.
By implementing a reserve the project can provide a stronger price and reduced price fluctuations ensuring an equitable trade experience.
A similar issue occurs with slippage on stable coins and the project has developed a specialised algorithm to ensure the LP positions remain closer to the curve.
Liquidity Bootstrapping Pools
A problem that many new projects encounter is initial seed capital to launch their projects and unless they are popular projects fail to generate enough community support. The Liquidity Bootstrapping pools enable start-ups to undertake fair launches and raise the capital they need.
One project multiple positions
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Another unique feature of Astroport are Astro Generators which will enable users to stake in pools on Astro which provide LP to other project which than in turn provide the selected pools native token AND Astro's. This will greatly benefit start up's as mentioned in the white paper Start-ups will not need to alter their UI's and investors can still receive payment.
Lockdrop Launch
At Current Astroport is preparing to launch and is doing so through a lockdrop which effectively is a time limited LP position. According to the Lock drop website if you lock in your LP positions today you will receive a limited amount of airdropped Astro with the initial LP reclaimable on 28 March 2022.
Participating in the Lock drop will earn you incentives with ongoing rewards. You can stake and learn more or provide LP even in the form of UST on it's own here
If you would like to know more about the project you can read their litepaper Here
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Image sources provided supplemented by CANVA Pro subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services