There are actually a couple of things to unpack here. That’s why when you search the term AMM crypto you may find a ton of answers that don’t necessarily apply to what we could call your specific search intention. An AMM for starters is an automated market maker. This is a platform where you’re going to be able to process crypto transactions. In fact, it’s a decentralized platform. In a way, though, the platform does act very similarly to how we’ve seen currency exchange brokers operate for years.
An AMM typically sits within the Ethereum blockchain, and its main purpose is precisely to process these crypto transactions. When you think about an AMM crypto you may be referencing a stablecoin AMM based. What these coins or tokens mostly are is the official currency of the platform itself. In simple terms, they operate like the famous Mickey Mouse dollars. In that, the transactions within the platform are performed in that currency. This is usually something that is done to keep the transactions within the platform under control. These AMM crypto tokens are usually what are called pegged assets.
Pegged Assets & AMM Crypto Exchanges
We’ve mentioned that AMM crypto exchanges use these pegged assets as a way to better control the transactions that take place on a platform. The thing is that users can come into the platform with all sorts of fiat currencies and cryptos. The best way to be able to handle transactions, or just give everyone access to the same financial instruments that the platform offers is to get everyone on the same currency.
One of the things that worry people is that their investment could lose value if they exchange their current currency for a stablecoin. While this is a possibility there’s a reason why stablecoins tend to be pegged to assets whose value doesn’t fluctuate as much. For example, a common asset that a token is pegged to is the US dollar. While everyone can have an opinion on how the dollar is doing it is typically less volatile than most cryptos. That’s what these platforms are looking for in these particular situations. To be able to get all of their users on even terms.
Is It Safe To Process Transactions Within These Platforms?
For the most part processing transactions through an AMM should be a safe enough procedure. Particularly, if you understand the terms that which the transaction is being processed under. There are certain platforms out there that we maybe wouldn’t recommend. You want to work with a platform that’s ideally been around a while. At the same time, most of the reliable platforms don’t have a problem with revealing the type of safety protocols that they put in place to protect your transactions.
Processing a transaction through these platforms should be perfectly safe. Just as long as you make sure that you are operating through a platform that features competent safety protocols. When you do that you’ll truly be able to combine the best of both worlds. Access to the crypto market. With certain financial instruments that up until recently were only run by the traditional banking system.