SuperEx Guide: Spot Market Trading Course（IV）

#SuperEx #Guide #SpotTrading

If you’ve spent enough time in the crypto market, you’ve probably noticed something fascinating: on decentralized exchanges (DEXs), you can almost always buy the token you want and sell the token you own — without ever trading directly with another person.

There’s no need to wait for a counterparty or for someone to place an order. You simply click Trade, receive a price instantly, and the transaction settles on-chain within moments.

So naturally, a few questions come to mind:

• Who is matching these trades?
• Who provides the prices?
• How can a completely decentralized exchange operate 24/7 without anyone managing it?
• How does it determine the price you see?
• Why does the price keep going up the more you buy tokens like X2Y2, UNI, or PEPE during a bull market?
• Why can some people earn trading fees simply by depositing their tokens?
• And why do others warn that becoming an LP can lead to impermanent loss?

The answer to all of these questions comes down to one technology: AMM (Automated Market Maker).

In today’s article, we’ll explain AMMs from the ground up — from how they work, to their limitations, and where they’re headed — all in the simplest way possible.

Imagine the crypto market between 2014 and 2017.

Back then:

• If you wanted to trade tokens, you had to use a centralized exchange (CEX).
• Every trade depended entirely on an order book.
• If nobody placed a sell order, you couldn’t buy.
• If nobody placed a buy order, you couldn’t sell.

The matching process looked like this:

• Buyers specified how much they were willing to pay.
• Sellers specified how much they were willing to sell for.
• The exchange matched the two sides together.

This is known as the order book model, and it came with plenty of drawbacks:

❌ 1. Fragmented LiquidityNo orders meant no trades. New projects often had almost no liquidity because nobody was placing orders.

❌ 2. High Market-Making CostsExchanges had to hire professional market makers (MMs) to maintain sufficient order book depth.

❌ 3. Easy Market ManipulationSpoof orders, flash crashes, and other forms of market manipulation were common.

❌ 4. Custodial RiskAssets remained under the control of centralized exchanges, meaning users didn’t truly own their funds.

For decentralized exchanges, the traditional order book model simply wasn’t practical because:

• On-chain order matching is expensive.
• Order placement is slow.
• Continuously updating an order book on-chain is highly inefficient.

That’s why AMM was invented.

Its revolutionary idea can be summarized in one sentence:You no longer need another trader on the other side of your transaction — you simply trade with a liquidity pool.

Understanding AMM

1. The Core Innovation: Liquidity Pools

The biggest innovation behind AMMs is the Liquidity Pool.

Instead of matching buyers with sellers, all tradable assets are deposited into a shared pool.

Take an ETH/USDT liquidity pool as an example:

• User A deposits ETH.
• User B deposits USDT.
• User C deposits both ETH and USDT.
• User D simply wants to earn trading fees, so they also deposit both assets.

Together, everyone’s assets form a shared pool known as a Liquidity Pool (LP Pool).

When you want to buy ETH, you deposit USDT into the pool, and the pool automatically sends you the equivalent amount of ETH.

When you want to sell ETH, you deposit ETH into the pool, and the pool automatically sends you the corresponding amount of USDT.

As a trader, you’ll notice something remarkable:

• No counterparty required.
• No limit orders required.
• No professional market makers required.
• No waiting.

The liquidity pool itself becomes your counterparty.

The more trading activity the pool handles, the more fees it generates. Those fees are automatically distributed to every LP according to their share of the pool.

That’s why AMMs can execute trades with a single click.

2. The Formula Behind Every AMM: x × y = k

Uniswap transformed the entire DeFi industry with one incredibly simple equation.

The total amount of two assets inside a liquidity pool must satisfy: Token A × Token B = Constant (k)

This is known as the Constant Product Market Maker model.

Let’s look at a simple example.

Suppose an ETH/USDT pool initially contains:

• 100 ETH
• 100,000 USDT

The initial price is therefore: 100,000 ÷ 100 = 1,000 USDT per ETH

So the constant becomes: k = 100 × 100,000 = 10,000,000

Now suppose someone buys 1 ETH.

The pool now holds: 99 ETH.To keep x × y = k, the amount of USDT inside the pool must increase to approximately 101,010.1 USDT.As a result, the price of ETH increases slightly.

• The more people buy, the higher the price climbs.
• The more people sell, the lower the price falls.

That’s why you’ll often notice:

• The more you buy, the more expensive it becomes.
• The more you sell, the cheaper it becomes.

This automatic price adjustment is one of the defining characteristics of AMMs.

How Does an AMM Make Money?

Trading Fees + MEV + Arbitrage

The core purpose of an AMM is to replace traditional market makers with algorithms, allowing anyone to become a liquidity provider (LP) and earn passive income.

But how can this system continue operating indefinitely?

Its economic engine mainly comes from three sources:

• Trading fees
• MEV (Maximal Extractable Value)
• Arbitrage

Let’s examine each one.

Most AMMs — including Uniswap V2/V3, PancakeSwap, and Curve — charge a trading fee on every swap.

Common fee tiers include:

• 0.30% (most common)
• 0.05% (stablecoin pools)
• 0.10% (some lightweight AMMs)

These fees don’t go to the platform.Instead, they’re distributed entirely among liquidity providers.

This means: Higher trading volume = Higher LP income.There’s no need to predict the market or manually adjust prices. Smart contracts automatically distribute fees based on each LP’s share.

For example:

If a liquidity pool processes $20 million in trading volume in a single day with a 0.3% fee, Daily LP revenue would equal:20,000,000 × 0.3% = $60,000. Ultimately, an AMM’s earning potential depends heavily on trading volume and liquidity depth.

AMM prices are calculated using formulas such as x × y = k, rather than being synchronized directly with external markets.

Whenever a price discrepancy appears, arbitrage opportunities emerge.

For example:

• If ETH is cheaper on the AMM than on a CEX, arbitrageurs buy on the AMM and sell on the CEX.
• If ETH is more expensive on the AMM, they buy on the CEX and sell into the AMM.
• The result is simple:Arbitrageurs earn profits while simultaneously bringing AMM prices back in line with the broader market.

This creates two major advantages.

① AMMs don’t require anyone to manually maintain prices.

Traditional exchanges rely on market makers to continuously adjust bid and ask orders.

AMMs rely on arbitrageurs to perform this function automatically.

② Arbitrageurs effectively become decentralized market makers.

Prices can never drift too far away from the market because arbitrageurs continuously exploit price differences until equilibrium is restored.

This is why arbitrageurs are often called the natural market makers of AMMs.

Through their own profit-seeking behavior, they help maintain the long-term stability of the entire ecosystem.

Many AMM platforms also provide extra incentives to attract liquidity providers, including:

• Platform token rewards
• Liquidity mining
• Yield farming
• Ecosystem airdrops

These incentive programs essentially exchange newly issued tokens for deeper liquidity, creating a positive network effect.

The flywheel looks like this: More Liquidity → Better Trading Experience → Higher Trading Volume → Greater LP Rewards → Even More Liquidity

In summary, AMMs generate value through three primary mechanisms:

1. Trading fees — the most stable and sustainable source of income.
2. Arbitrage-driven price correction — which keeps markets efficient and indirectly supports LP returns.
3. Platform incentives — such as token rewards and liquidity mining that boost overall yields.

SuperEx Free Market AMM

SuperEx’s AMM automatically calculates bid and ask prices using algorithmic formulas, providing continuous market quotes at all times.

Unlike traditional DEXs, SuperEx combines AMM technology with an order book. The system automatically converts liquidity pool depth into an order book, delivering a trading experience that’s both familiar and highly efficient.

AMMs are already the foundation of many leading DeFi protocols and decentralized exchanges, including Uniswap, SushiSwap, and Curve.

How Is AMM Different from Traditional Market Making?

Traditional financial markets rely on professional market makers to continuously provide bid and ask quotes and maintain liquidity.

AMMs achieve the same goal through smart contracts and mathematical algorithms, allowing liquidity to be supplied automatically and enabling decentralized trading around the clock.

The key differences include:

1. Liquidity Provision

Traditional Market Making

• Liquidity is provided by professional market makers.
• They use sophisticated algorithms and trading strategies to place buy and sell orders while earning the bid-ask spread.

AMM

• Anyone can become a liquidity provider simply by depositing assets into a liquidity pool.
• No professional trading experience is required.
• LPs earn a share of trading fees.

2. Pricing Mechanism

Traditional Market Making

• Prices are determined through an order book and market supply and demand.

AMM

• Prices are calculated automatically using mathematical formulas such as x × y = k.
• No order book or counterparty is required.
• Trades execute instantly.

3. Liquidity Efficiency

Traditional Market Making

• Liquidity depends on market makers’ willingness to quote prices.
• During volatile periods, liquidity may disappear.

AMM

• Liquidity pools are always available.
• However, when one asset becomes heavily depleted, traders may experience higher slippage.

4. Typical Use Cases

Traditional Market Making

• Primarily used by centralized exchanges (CEXs).
• Suitable for high-frequency traders and advanced order types.

AMM

• Primarily used by decentralized exchanges (DEXs).
• Greatly lowers the barrier to entry for everyday users.

5. Revenue Distribution

Traditional Market Making

• Profits belong exclusively to professional market makers.

AMM

• Anyone can become an LP and earn a share of trading fees.

Earn Trading Fee Rewards in Just 3 Steps with SuperEx AMM

Getting started is incredibly simple.

You only need three steps to begin earning liquidity rewards:

1. Log in to your SuperEx account.
2. Select the token you’d like to provide liquidity for.
3. Deposit your token and USDT into the liquidity pool and start earning trading fees.

No large capital commitment.

No complicated API configurations.

No professional market-making experience.

In just one minute, anyone can become a liquidity provider and start participating in decentralized market making while earning passive income.