Brief History of Automated Market Makers

This post is meant to provide an overview of the Automated Market Maker (AMM) space. First by reviewing some of the history and various designs. Following will be a walkthrough of using AMM pricing functions for other applications than spot trading leading to interesting dynamics and the evolving relationship between onchain orderbooks and AMMs.

Everything written in the post is outlined in the following repository https://github.com/0xperp/awesome-amm

A Little History

While the existence of AMMs truly took off with Uniswap there is quite a history to it.

Sep 2, 2015: Martin Köppelmann: Gnosis Market Maker Orderbook

• Describes the idea of including a market maker into an orderbook

Sep 26, 2016: Nick Johnson: Euler

• Using a single token Euler as a pair for all other tokens to always trade against

Oct 3, 2016: Vitalik: Let's run on-chain decentralized exchanges the way we run prediction markets

• Summarizing the posts above from Martin and Nick, Vitalik mentions that AMMs should function like existing on-chain prediction markets (such as Augur)

Mar 6, 2017: Alan Lu: Building a Decentralized Exchange in Ethereum

• Describes various potential invariants for an AMM

Mar 2, 2018: Vitalik: x*y=k market makers

• Vitalik recaps his post from two years prior and mentions Martin Köppelmann’s suggestion of the x*y=k automated market maker with further simulations and functions

• Uniswap V1 Contracts
• Uniswap received a grant from the Ethereum Foundation in August

Various AMM Launches