Understanding Prediction Market Mechanisms: Order Books vs AMMs
Understanding Prediction Market Mechanisms: Order Books vs AMMs
🔮 Market mechanics unveiled
Prediction markets operate on blockchain networks, often using Ethereum layer 2 for efficiency. They rely on two main models:
- Order Books: Match buy and sell orders, allowing precise pricing but requiring active participation.
- Automated Market Makers (AMMs): Use liquidity pools for constant liquidity but may suffer from slippage.
Key differences:
- Order books offer control and flexibility but need sufficient liquidity
- AMMs prioritize simplicity and consistent liquidity but lack precision
Understanding these mechanisms is crucial for informed trading on prediction market platforms.
Learn more: UMA Blog
Liquidity, slippage, and order books — these terms can be confusing for those new to prediction markets. What happens under the hood of prediction markets like @polymarket & @predictdotfun? Let’s look into it more... 🔍 👇 Prediction market platforms operate on various
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