Binance Looking to Mimic DeFi Liquidity Pools with Centralized AMM

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In Brief
  • Centralized exchanges are looking to capture interest in AMMs for liquidity

  • Binance launches stablecoin liquidity swap pool

  • It's unclear why Binance did not launch via its Binance Chain DEX

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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.

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.

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After finishing his studies in International Business Administration at the Frankfurt School of Finance & Management, Christian started working at a real estate development company. Upon discovering Bitcoin and the cryptocurrency space, he switched his focus to learn, analyze and write about all things digital.

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