MARKET INFRASTRUCTURE

Automated Market Maker (AMM)

A decentralized exchange mechanism that uses a mathematical formula and pooled liquidity—rather than a traditional order book or dealer—to price and execute asset trades algorithmically, around the clock.

EXAMPLE

An AMM-based FX pool for tokenized USD/EUR enables 24/7 currency conversion for cross-border stablecoin settlements without a bank dealer intermediating each trade.

Relevant Roles and Functions

On-chain Role
Head of On-Chain Liquidity and Treasury
On-Chain Liquidity Strategist
Function
Blockchain-based Treasury Management
Digital Collateral
Settlement Funding across Networks
Stablecoin Liquidity
TradFi Equivalent
Central Banks
Clearinghouses
Payment Systems

Related Terms

Liquidity Pool

A smart contract that holds reserves of two or more assets, enabling decentralized trading, lending, or borrowing. Participants who deposit assets earn a share of fees proportional to their contribution.

Example

An institutional liquidity pool for tokenized government bonds enables real-time repo without requiring a central dealer to intermediate each trade.

On-Chain FX

Foreign exchange transactions executed directly on a blockchain, using tokenized currencies or stablecoins, enabling 24/7 settlement without a traditional FX dealer or correspondent bank acting as intermediary.

Example

Ripple's on-chain FX mechanism allows banks to convert between tokenized currencies at point of settlement, eliminating pre-funded nostro accounts in each currency.

Slippage

The difference between the expected price of a trade and the actual execution price, often caused by low liquidity or large order sizes. Institutional traders monitor slippage to assess on-chain market depth and execution quality.

Example

A corporate treasury executing a $10M USDC-to-USD swap experienced 15 basis points of slippage due to fragmented liquidity across decentralized exchanges, highlighting the need for aggregated execution layers.