Following the DeFi craze that lured participants in with Automated Market Maker (AMM) systems, centralized exchanges like Binance are now eager to follow suit.
One of the largest centralized cryptocurrency exchanges around, Binance has launched its own AMM liquidity swap on Sep 4.
The Trend in Market Making
Earning fees as a liquidity provider has been a possibility for some time, ever since the first decentralized exchanges were launched.
With a lot of progress being made on providing liquidity in decentralized markets, AMM systems came into the limelight recently when providers were incentivized to earn considerable fees. As DeFi unfolds, some investors are staking their tokens and earning rewards with APY’s in the realm of 1,000%.
The explosion in trading activity has seen volumes on the most popular DEX Uniswap reach $11 billion in August with the total value locked (TVL) surpassing $7 billion.
Considering the success that DEX’s have so far achieved with AMM’s, centralized exchanges appear to be jumping on the bandwagon to offer similar solutions.
Binance Adds Centralized AMM Pool
Centralized exchanges generally have their own market making system or partner with specialized market makers. AMMs on the other hand make providing liquidity cheaper and simpler for anyone through a completely automated process.
The downside is that traders can only place market orders. There are no limit orders as found on a centralized exchange.
The newly added Liquid Swap represents Binance’s attempt to keep liquidity on the platform. During the past few months decentralized exchanges have become a black hole for liquidity.
Introducing #Binance Liquid Swap!
Instant liquidity via Automated Market Maker with 0.04% transaction fees for the first month.
Binance Liquid Swap advantages:
🔸High returns
🔸Low slippage
🔸Competitive fees$BUSD, $DAI, and $USDT pairs are available in the Swap Pool now!— Binance (@binance) September 4, 2020
The offering will have pairs for three stablecoins, namely BUSD, DAI, and USDT.
While Binance states that liquidity providers will earn “higher returns” and traders in these pools can enjoy low trading fees, it’s unclear why the exchange launched an AMM on its centralized platform rather than on the Binance Chain DEX.