Automated Market Makers Algorithms for efinance
Lattice offers liquidity through a scalable network for DeFi traders. Lattice offers a significant protocol for microservice applications on the Constellation Network. Microservices make the Constellation exchange able to evolve with modularity and interoperability.
Microservices based on Lattice consensus reduce inefficiency and costs for high volume trading. Intelligent applications on Lattice exchange allow for a fully decentralized finance microservice architecture.
Why does a market maker help DeFi?
DeFi trading lets decentralized finance work anywhere and anytime using a blockchain architecture. The blockchain exchange’s role of buying and selling cryptocurrency offers a starting point. There is a scale of time for an order book of buyers and sellers based on a demand relationship. Demand curves are an important topic for why market makers are important. The scale of time for transactions to occur is important for getting a range of desirable prices for buyers and sellers. Immediacy, liquidity, and trade execution are important backend services to modern exchanges.
Demand relationships are essential to why voluntary trading works on exchanges. Trade execution is the ability to conduct a trade at a time the trader desires at a public price seen on the exchange. For example, if a tradable asset is guaranteed to crash, then why would anyone buy it? It may not be possible to trade at a desired time for a desired price for all traders. This is the distinction of broker based exchange versus a direct exchange. As a result of the volatility of reactive trading and demand for immediacy, a direct exchange must adopt financial mechanisms to handle the instability of p2p trading.
Immediacy is the capacity to sell or buy at any time. Whereas, liquidity is the ability to buy/sell a large selection of assets to keep access to the market flowing with a stable velocity of trades. In financial markets, the market makers can create a diverse distribution of assets defined by scales of time, where variations in selling prices and buying prices for a wide range of assets have a stabilized distribution of risk. Cryptocurrency exchanges handle risk and volatility without market makers and, for similar reasons as financial markets, requires mechanisms to handle the complexity behind the scenes without affecting traders freedoms on the market.
Volatility is better handled by market makers than by random chance. Think of individual traders as retailers of an asset to other traders. Since the strategy with trading spreads for each individual trader will compete with every other trader, there are emergent price fluctuations driving a loss in liquidity. Notice the scale of time issue is very important. If the goal is to sell now, but selling is beset by high fees, lack of offers, etc., retailers will be discouraged from participating in the market.
For every direct exchange there is an invisible hand. For blockchain exchanges the need for market makers is to serve as an invisible hand. Demand curves can be spread out in terms of risks by market makers. Immediacy to buy and sell at any time for all traders can be done by market makers. Liquidity adjusted to a real time flow for distribution of bid-ask spreads in the context of volatility can be managed by a market maker.
For automated high frequency trading algorithms the need for market makers is all the more necessary. The pressure, volume, and dynamics of these direct exchanges is like the fluid dynamics of ocean current. Market makers are a dock to escape turbulence.
Automated Market Maker on Lattice Exchange?
Time and risk are essential to a transaction. Linking every transaction in a selling and buying network enables consensus networks on how immediacy, liquidity, and volatility is distributed. Market makers must handle the macro-layers of a trading network with bearing risk for perks. An automated market maker can be thought of as a robot alternative to a market maker firm. An automated market maker is like an automated auction without an auction house.
The ability to reserve network capability for low cost transactions for big data requiring security and authentication is based on the blockchain ecosystem of traders and nodes. The success of the exchange drives the success of the network underlying the blockchain. And as a result the ability to create microservices from these applications requires scalable liquidity pools and low barrier transaction thresholds. The Constellation Network provides these features able to handle big data with big security making automated market makers an effective tool for utilizing the exchange.
There is a detailed history of market maker functions in various securities and various other markets. However, what makes Lattice unique is the microservices architecture. One AMM or 10,000 AMMs can be run on multiple types of liquidity pools and hedged token reserves. This means it’s as modular as possible and can work with a network of only two endpoints. Consensus based reputation scores provide the economic alternative to the current norm of Ethereum based smart contracts. A proxy smart contract based on multiple token types which are able to be pooled together across different chains is essentially a hypergraph network. The big trait of this network is the ability to be open to a large set of nodes at any time.
Automated market makers are operating on assumptions for optimization of tradable assets for a particular pool of liquidity and risk. The fact that is a microservice architecture can host any number of automated market makers as a decision support for spread strategy and hedges against risk. This means there is competition and choice about what AMMs to use and when for each trader. This advantage is essentially giving traders on the Lattice network the ability to benefit from optimized decision support built into the application. The advantage of maintaining liquidity, immediacy, volatility buffers, and hedges in AMMs lets traders not have to worry about these factors in order to participate competitively in the exchange.
Lattice Network will be able to build an interoperable direct exchange using a modular microservice architecture to create an unparalleled network labyrinth underneath the exchange. This network capability will make financial applications available to anyone, anywhere, anytime.