Order book trading is a method of exchanging assets where buy and sell orders are listed and matched by a system. This traditional trading mechanism displays a list of all outstanding buy (bid) and sell (ask) orders for a specific digital asset at various prices, providing real-time market depth and liquidity information. Trades occur when a buyer’s bid price matches a seller’s ask price, or vice versa, typically facilitated by a centralized exchange. It allows for precise price control and transparency regarding supply and demand dynamics.
Context
While common in centralized digital asset exchanges, order book trading presents scalability challenges for fully decentralized implementations due to the high transaction throughput required. Discussions often compare its efficiency and liquidity provision with automated market maker (AMM) models prevalent in decentralized finance. Future innovations may seek to combine the benefits of order books with decentralized execution, potentially through Layer 2 solutions or specialized protocols.
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