DeFi swaps are decentralized exchanges that allow users to trade one cryptocurrency for another without an intermediary. They operate using automated market makers, which are smart contracts that hold pools of different tokens. Users interact directly with these pools to execute trades, receiving a different token in return based on the pool’s current liquidity and pricing algorithms. This process facilitates peer-to-peer asset exchange within decentralized finance protocols.
Context
The current discussion around DeFi swaps involves their role in facilitating liquidity provision and enabling complex trading strategies within the decentralized finance landscape. Debates often focus on the efficiency of automated market makers, the potential for impermanent loss for liquidity providers, and the regulatory scrutiny these platforms may face. Innovations in concentrated liquidity and cross-chain swapping are also key areas of development.
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