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Order book-based lending | bedlam

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Constant Function Automated Market Makers (AMMs) are the most common format of liquidity provision on blockchains. AMMs specify the shape of liquidity around the current price using an invariant function. On the other hand, order books (OBs) or central limit order books (CLOBs) are widely used in traditional finance and on centralized crypto exchanges. CLOBs allow market makers to define the shape of liquidity they want to provide around the mid-price (the mid-price is the midpoint price between the highest bid and the lowest ask). Newer AMM designs like Concentrated Liquidity Market Makers (CLMMs) allow liquidity providers (LPs) in DEX protocols to provide liquidity within a range, helping the aggregate liquidity in a pool take many shapes. This capacity brings CLMMs closer to CLOBs with respect to the overall shape of liquidity that can be provided to any given asset pair. The shape of the liquidity (NB: shape encompasses both the spread and the depth of liquidity across price levels

Written by: linguine ( Marlin ), krane ( Asula ) and prince Thanks to tarun , emperor , ren , rajiv , jim , and sam hart for their comments and feedback Preamble Constant Function Automated Market Makers (AMMs) are the most common format of liquidity provision on blockchains. AMMs specify the shape of liquidity around the current price using an invariant function . On the other hand, order books (OBs) or central limit order books (CLOBs) are widely used in traditional finance and on centralized crypto exchanges. CLOBs allow market makers to define the shape of liquidity they want to provide ar

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