Welcome to Magic Eden's AMM Pools, where NFT trading on Solana becomes a breeze. In this guide, we'll walk you through the definitions, use-cases, and how to access and utilize the various types of AMM Pools available. Whether you're dealing with single or multiple-item orders, Magic Eden's Automated Market Maker (AMM) makes it simple to manage your liquidity pools effectively.
Understanding AMM Pools: Key Definitions
Before we delve into the intricacies of Magic Eden's AMM Pools, let's familiarize ourselves with some essential terms:
Sell-order: An intention to sell an NFT (or a set of NFTs) at a specific price, posted by the owner (seller) on the marketplace.
Buy-order: An intention to buy an NFT that meets certain criteria at a designated price, posted by the buyer on the marketplace.
Sell-side liquidity (LP): One or more sell orders.
Buy-side liquidity (LP): One or more buy orders.
Double-sided liquidity (LP): One or more buy orders followed by one or more sell orders.
Use-Cases: The Power of AMM Pools
Handling single-item orders may be manageable, but as your trading activities grow, managing multi-item orders (LPs) can become overwhelming. Magic Eden's AMM Pools provide a seamless solution for handling sell-side, buy-side, and double-sided LPs, regardless of their size.
Accessing Magic Eden's AMM Pools
To access Magic Eden's AMM Pools, follow these simple steps:
Click on your shopping cart and select the 'Advanced Orders' toggle.
The Market-Making option will appear, where you can choose from 'Buy Only,' 'Sell Only,' or 'Double Sided.'
All advanced orders are completed by selecting the 'Place Order' button.
Magic Eden AMM Flow Walkthrough
Buy-Side LP
A buy-side LP allows you to set up multiple collection offers with different prices effortlessly. Instead of inputting prices one by one, you can describe the entire buy-side LP using the following terms:
Pricing curve type: Linear or exponential
Highest buy price on the curve
Number of single buy orders on the curve
Incremental delta amount on the curve: Difference between two consecutive price values as a percentage change (for exponential curve) or an additive amount (for linear curve) going from lowest to highest.
Royalty-payment enabled: Determine whether royalty payment is required on each sale.
Example
A buy-side LP with an exponential pricing curve type, 10.5 SOL highest buy price, 5 single buy orders on the curve, 5% incremental delta amount, and royalty-payment enabled means that the LP creator pays the net prices to lock in the buy-side LP. The marketplace calculates an adjusted price for potential sellers, budgeting royalty amounts and other fees.
Sell-Side LP
A sell-side LP is similar to multiple listings with different prices, but you only need to describe the entire sell-side LP using the following terms:
Pricing curve type: Linear or exponential
Lowest sell price on the curve
Set of NFTs for the sell-side LP
Incremental delta amount on the curve: Difference between two consecutive price values as a percentage change (for exponential curve) or an additive amount (for linear curve) going from lowest to highest.
Royalty payment required on each sale
Example
A sell-side LP with an exponential pricing curve type, 11.025 SOL lowest sell price, 4 NFTs in the sell-side LP, 5% incremental delta amount, and royalty payment required means that the LP creator selects 4 NFTs for the sell-side LP. The marketplace calculates an adjusted price for potential buyers, budgeting marketplace fees.
Double-Sided LP: The Power of Market Making
A double-sided LP is the pinnacle of market-making functionality on Magic Eden. By combining both buy-side and sell-side liquidity, users gain unprecedented control and flexibility in their NFT trading. The double-sided LP essentially functions as a complete market maker, allowing users to trade both sides of the market effortlessly.
How it Works
Selecting NFTs to Buy and Sell
As a creator of a double-sided LP, you have the freedom to specify the number of NFTs you want to buy and sell. This enables you to actively manage your inventory while ensuring a balanced and liquid market.
Setting the Start Price
For both buying and selling, you can set the initial price point at which you are willing to engage in transactions. This establishes a foundation for your LP and helps determine the initial market sentiment.
Defining the LP Fee
With a double-sided LP, you have the unique opportunity to collect fees from every transaction that occurs within the liquidity pool. You can set the LP Fee as a percentage of the value for each buy or sell transaction. This feature empowers LP owners to earn additional income based on the trading activity within their LP.
Adjusting the Price Dynamics
To account for market fluctuations and optimize your LP's performance, you can set the 'Change By' variable. This value can be measured in SOL value or percentage, allowing you to fine-tune the responsiveness of your LP to market changes.
Visualizing the Price Curves
Once you configure your double-sided LP, the system will display the buy and sell orders as distinct lines or curves on the interface. The buy orders will be represented by a grey line, while the sell orders will be shown in green. The gap between the two lines will vary based on the 'LP Fee' you've set. This visual representation offers valuable insights into potential market trends and helps users make informed decisions.
Example
The LP owner can set the number of NFTs to buy and sell, the 'Start Price' for buying or selling, the 'LP Fee' (a percentage of every buy and sell), and the 'Change By' variable (measured in SOL value or percentage). The prices for buying and selling NFTs are displayed as grey and green lines, respectively, with the gap between them varying based on the 'LP Fee.
Addressing Impermanent Loss
Impermanent Loss is an important consideration for double-sided LP pools. Impermanent Loss occurs when the price of the tokens in the LP diverges from the initial state. However, with a well-designed strategy and careful monitoring, users can minimize the impact of Impermanent Loss and make the most of their double-sided LP.
With Magic Eden's AMM Pools, NFT trading becomes simple and efficient. Easily manage your sell-side, buy-side, and double-sided LPs on Magic Eden with the right tools. For more information, explore our FAQs or reach out to our dedicated support team.