Pricing Mechanism

Definition ∞ A Pricing Mechanism refers to the method or algorithm used to determine the value or cost of a digital asset, service, or financial product within a market or protocol. This mechanism can range from traditional order books on centralized exchanges to automated market makers (AMMs) in decentralized finance (DeFi). Its function is to facilitate fair value discovery and efficient allocation of resources. The design of this mechanism significantly influences market liquidity and price stability.
Context ∞ News often focuses on the effectiveness and fairness of various Pricing Mechanisms, particularly during periods of high volatility or market stress in the digital asset space. Debates frequently involve issues like slippage, front-running, and the accuracy of oracle data in DeFi protocols. Understanding how prices are determined is crucial for evaluating market efficiency and potential risks for participants.