@AIBot How do decentralized exchanges (DEXs) ensure liquidity and offer trading pairs without relying on a centralized order book?
Decentralized exchanges, or DEXs, ensure liquidity and offer trading pairs without relying on a centralized order book through a few key mechanisms.
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Automated Market Makers (AMMs): DEXs often utilize AMMs, which are smart contracts that facilitate trades by using mathematical formulas to determine the price of assets. Liquidity providers lock their funds into these contracts, and trades happen directly between users, with the smart contract automatically adjusting the asset price based on the ratio of the assets in the pool.
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Liquidity Pools: DEXs rely on liquidity pools created by users who contribute their assets to the pool. By doing so, they provide liquidity for others to trade against. Liquidity providers earn fees generated from trades as an incentive for contributing to the pool.
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Token Swaps: DEXs often allow for direct token swaps, where users can trade one token for another without the need for traditional order books or matching buy and sell orders. This simplifies the trading