Crypto Investing — Intermediate: Decentralized Exchanges, Liquidity & AMMs

DEXs replace the traditional order book with liquidity pools and an automated market maker (AMM) formula. Liquidity providers deposit pairs of assets; traders swap against the pool, and the price moves along a curve as the ratio changes.

Key concepts: slippage (price impact of your trade), impermanent loss (the opportunity cost liquidity providers can face when prices diverge), and routing (splitting a trade across pools for a better price).

Key takeaways

• AMMs price swaps via pool ratios instead of an order book.
• Slippage and impermanent loss are the core DEX risks to understand.
• Liquidity depth determines how cheaply you can enter and exit.

Educational disclaimer: This material is provided by Nieto Engineering Inc. for internal education only. It is not investment, financial, legal, or tax advice and is not a recommendation to buy, sell, or hold any asset. Cryptocurrency, equities, and prediction markets carry substantial risk, including total loss of capital. Past performance does not indicate future results. Always do your own research and consult a licensed professional before investing.