Hybrid Order Books + vAMM
Within the crypto domain, order books play a critical role in the deployment of exchanges. An order book is an electronic form of documentation which records the buy and sell activity of a particular asset on an exchange. Order books include additional information such as an asset's availability, and who initiates trades. This drastically improves market transparency for their respective exchanges. The information stored on an order book is almost always organized by price.
The utilization of virtual automated market makers (vAMM) is common practice among decentralized exchanges (DEX). Exchanges employ vAMMs because they are better equipped for markets with low liquidity.
Order books and vAMMs come with their own inherent differences, which influences the ways in which they are utilized by exchanges. The most prominent difference being, order books are better suited for high liquid markets. On the flip side, vAMMs are better suited for less liquid markets. Additionally, both order books and vAMMs present a varying degree of risk, in regards to slippage.
Slippage is a term that refers to how the size of an order can cause the price of an asset to fluctuate. This is especially an issue for frequent buyers, which means reducing the risk of slippage is a worthy endeavor. With order books, slippage will remain low even if trading volumes are high. However, since many decentralized exchanges don't have large liquidity pools that rely on vAMMs, a large order can result in high slippage.
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