Beginner’s Guide: Understanding AMM
1. What is AMM?
AMM (Automated Market Making) is a mechanism that allows the system to “automatically place buy and sell orders” for you. Without manual operations, the system quotes buy and sell prices based on a predefined formula, ensuring market liquidity at all times.
🔗 Learn more: Introduction to CoinEx AMM >>
2. How to earn income?
Each AMM market generates trading fees. By depositing two paired assets into the AMM liquidity pool, users can earn a proportional share of the trading fees - just like market makers.
3. What are the risks associated with AMM?
The primary risk of AMM is “Impermanent Loss”, which means that during significant price fluctuations, the total value of assets you withdraw may be lower than if you had simply held the tokens.
🔗 Read Section “AMM Risks: Understanding Impermanent Loss”
4. Who is suitable for AMM?
Traders looking to earn fees and willing to accept fluctuations in the amount of assets based on market conditions.
Advanced Guide: Applicable Markets and Earning Mechanisms
1. AMM markets supported by CoinEx
An AMM market refers to any trading market on CoinEx that supports automated market making.
📍 Visit the CoinEx AMM page for full AMM data >>
2. How to earn from AMM?
AMM earnings on CoinEx mainly come from the trading fees returned by the platform. Liquidity providers (LPs) earn a pro-rata share of 50% of the trading fees generated in that market, based on their share of the liquidity pool.
Note: The fee rebate ratio for CET-related markets is 100%.
Calculation example
For the CET/USDT market, if the total trading fees in one hour are 10,000 USDT and 10,000 CET, and you hold a 1% share in the liquidity pool, your earnings for that hour would be:
- 10,000 USDT × 100% × 1% = 100 USDT
- 10,000 CET × 100% × 1% = 100 CET
3. How to participate in AMM?
🔗 Please refer to the AMM tutorial (Web｜App)
Further Reading: How does AMM Work?
1. What is a Liquidity Pool?
A liquidity pool is a public fund in an AMM market where two assets (e.g., CET/USDT) are stored. Each AMM market has an independent liquidity pool that follows the “Constant Product Market Maker” (CPMM) model.
When users trade (e.g., buying CET with USDT), the quantities of the two assets in the pool automatically adjust (USDT increases, CET decreases) to maintain a constant product and derive real-time prices.
Once users provide liquidity, they earn trading fees returned by CoinEx, which automatically accumulate in the pool and can be withdrawn as a lump sum when liquidity is removed.
2. Which AMM models does CoinEx adopt?
CoinEx adopts the “Constant Product Market Maker” model in AMM. Users injecting assets into the liquidity pool must provide two assets simultaneously, maintaining a constant product of their quantities.
Based on this model, CoinEx applies 2 AMM algorithms:
(1) Infinite‑Range AMM Algorithm: Based on the Infinite Constant Product Market Maker model, this algorithm provides continuous liquidity regardless of price fluctuations. It is mainly used in non‑stablecoin markets, such as CET/USDT.
(2) Finite‑Range AMM Algorithm: Based on the Finite Constant Product Market Maker model, this algorithm sets specific price ranges to enhance capital efficiency, mainly used in stablecoin markets, such as USDC/USDT.
3. What are the fees for AMM markets?
CoinEx AMM markets have an independent fee structure. VIP discounts and CET fee deduction are NOT applicable.
| User type | Non‑stablecoin AMM rate | Stablecoin AMM rate |
| Regular users | 0.30% | 0.10% |
| Market makers | 0.15% | Maker: 0%, Taker: 0.05% |
🔗 Learn more: AMM Market Fee Rules >>
AMM Risks: Understanding Impermanent Loss
1. What is Impermanent Loss?
Impermanent Loss is a common risk in AMM, occurring due to market price fluctuations, which can result in the value of your assets in the liquidity pool being less than if you had simply held them.
In AMM, the liquidity pool rebalances asset ratios according to the constant product formula (x × y = k):
(1) When prices change, the system automatically rebalances asset quantities, so the ratio of assets you withdraw may differ from your initial deposit.
(2) When the price deviates significantly from the initial price, the value of the rebalanced assets may be lower than if you had simply held them. The difference is called “Impermanent Loss”.
- If the price continues to deviate, Impermanent Loss may increase.
- If prices revert, the loss diminishes or may disappear entirely.
2. Example of Impermanent Loss
For CET/USDT, if CET's initial price is 0.5 USDT, and the liquidity pool contains 1,000 CET + 500 USDT, with a constant product of 1,000 × 500 = 500,000, and you hold a 10% share of the pool, here’s what would happen:
| Scenario | CET Price |
Liquidity Pool Status (Total) |
Your 10% Share | Your Asset Value | Notes |
| Initial state | 0.5 USDT |
1,000 CET 500 USDT |
100 CET 50 USDT |
100 USDT | Baseline value |
|
Market price increase (Injected liquidity) |
2 USDT |
500 CET 1,000 USDT |
50 CET 100 USDT |
200 USDT | Pool rebalanced per the (x × y = k) formula |
| Simply holding assets | 2 USDT | —— |
100 CET 50 USDT |
250 USDT | No rebalancing |
|
Impermanent Loss (IL) |
—— | —— | —— | 50 USDT | IL = Value of Assets (Holding) − Value of Assets (Injected to AMM pool) |
Note: For simplicity, fee earnings are excluded. In practice, accumulated fees may offset part or all of the Impermanent Loss.
3. How to reduce Impermanent Loss?
(1) Impermanent Loss is more prevalent in the early stage of market‑making or one‑sided markets. As trading fees accumulate and prices revert, Impermanent Loss may gradually diminish, and Liquidity Providers may eventually profit.
(2) Choosing markets or stablecoin pairs with smaller price movements can help minimize the impact of Impermanent Loss.
Risk Warning
Assets in your AMM Account will be added to the liquidity pool for automated market making. Due to price fluctuations, Impermanent Losses may occur, and the amount of assets you receive when removing liquidity may change.
Impermanent Loss generally diminishes as prices revert, but it may still affect overall returns.
Please fully understand AMM mechanisms and associated risks before providing liquidity.