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How does the AMM system work in a Uniswap clone script?
The most important feature of a Uniswap clone script is the Automated Market Maker (AMM). Instead of a traditional order book with buyers and sellers, an AMM relies on liquidity pools and mathematical formulas to automatically determine token prices. Trading pools, each containing a pair of tokens like ETH and USDT, are filled by users called liquidity providers.
Liquidity providers deposit equal values of two tokens into a pool. In return, they receive liquidity provider (LP) tokens that represent their share in that pool. When traders swap tokens, the AMM uses a pricing formula (i.e., x * y = k) to calculate the new price based on the current token balances. With each token purchase, its balance in the pool decreases, and the price automatically increases.
Every trade incurs a small exchange fee. This fee is distributed to the liquidity providers as a reward for locking their funds in the pool. This creates a passive income stream for users who contribute to the platform’s liquidity.
Admins can regulate important settings such as exchange fees, tokens, and liquidity rules. Users can connect with Web3 wallets without needing to create traditional accounts.
This system is transparent and trustless, as smart contracts automatically execute all transactions.
In summary, the AMM system in the Uniswap clone script can support 24/7 trading, instant exchanges, the absence of intermediaries, and transparency in participation, making it highly suitable for a decentralized exchange platform.
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