Afraswap AMM Protocol

This page describes the working of the Afraswap Trading and Aggregation Protocol

Most trades on Afraswap do not go directly through the AMM but they go through the Aggregator which allows the users to recieve the best exchange rates possible. Users have an option to use just Afraswap as well without going through the aggregation process to support the project.

Market making on Afraswap through AMM

At its core Afraswap uses the proven and effective AutoMarketMaking approach to provide users to fair and secure trading opportunity to users. The AMM approach has been proven effective by Swaps like Uniswap , Pancakeswap and Sushiswap.

AMM allows automated pricing calculations as the name suggests , but holding the funds in liquidity pools. Currently Afraswap uses pair based liquidity pools to allow for market making. Each pair holds the two tokens that the pair represents, for example if a pair is AFRA-BUSD , the pair would hold the Afra Tokens and and BUSD tokens , this is also referred to a liquidity pool. Anyone can add tokens to the liquidity pool and become a liquidity provider on Afraswap and in return the provider receives Liquidity Provider tokens (also referred to as LP Tokens) which are used to track the providers position on the pool. The provider can then receive the fees charged by Afraswap (currently 0.25% , more info below), and also stake these LP tokens in Farms to receive Afra Tokens as rewards.

The price of a token is dependent upon the ratio of funds held for the particular pair and can be calculated by a mathematical formula.This formula, most simply expressed as x * y = k, states that trades must not change the product (k) of a pair’s reserve balances (x and y). Because k remains unchanged from the reference frame of a trade, it is often referred to as the invariant. This formula has the desirable property that larger trades (relative to reserves) execute at exponentially worse rates than smaller ones.

Fees on AfraSwap

Currently each trade on Afraswap incurs a 0.25% fee from the user. This fee directly goes to the Liqudity Providers. Usually as a common approach most AMM's charge a protocol fees which takes a share of the fees from the liqudity provider and decreases the profit opportunity of the providers. On Afraswap to increase transparency and trust , we have removed the Platform Fees completely from our smart contracts , which allows us to reward the Liquidity Providers what they deserve as they are the most integral part of any AMM based DeFi Application.