Understanding Afrocoin Pricing
Learn how afrocoin pricing work and participate in pricing using AMM protocol
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Our Commitment to Decentralization
At Afrocoin, we haven't adopted blockchain simply because it's an emerging technology. Rather, we embrace it because we believe in its core principles of decentralization and trustless architecture. This commitment to decentralization was at the forefront when designing our pricing mechanism.
We needed a solution that would enable users from diverse backgrounds—regardless of their social class or investment experience—to participate equally and profit from their activities. In our search, we discovered that no other blockchain innovation matches the significance of automated market making (AMM) for achieving true decentralization.
Order book vs AMM
Traditional Order Book System
Traditional exchanges operate through a centralized order book system, which requires significant oversight and management by a central authority. This system works like a marketplace where buyers and sellers list their desired prices, but with several key dependencies on central control:
- A central authority must verify and approve all participating traders
- The exchange maintains and manages the order book
- Trade matching requires active involvement of the exchange
- Settlement and clearing processes are controlled centrally
Live Order Book Example:
Ask:Sell Orders (Managed by Central Exchange):
- 1 oz of silver for $35
- 2 oz of silver for $40
- 0.5 oz of silver for $30
Bid:Buy Orders (Managed by Central Exchange):
- 1 oz of silver at $34
- 0.5 of silver at $28
- 2 oz of silver at $39
A trade only happens when a sell order and buy order match on a price
Automated Market Maker (AMM)
AMMs revolutionize trading by eliminating the need for central authorities. Instead of matching buyers with sellers, AMMs use smart contracts and liquidity pools to enable permissionless, automated trading 24/7. The system works through mathematical formulas that automatically determine prices based on the ratio of assets in liquidity pools.
AMM Pool Example:
How to Provide Liquidity:
- Must provide both assets in correct ratio
- Example: To join pool with $8,000 worth:
- Deposit 1 oz of gold (worth $2,000)
- Plus 2,000 USDC
- Receive LP tokens as proof of deposit
- Earn 0.3% fee from all trades in pool
Pool Mechanics:
- Current Pool: 100 oz of gold + 200,000 USDC
- Constant Product Formula: x * y = k
- k = 100 * 200,000 = 20,000,000
- This k value must stay constant after trades
Trading Impact:
- Buy 1 oz of gold: Pay 2,000 USDC
- New ratio: 99 oz + 202,000 USDC
- Price move due to 1% pool change
- New price ~ 2,020 USDC
AMMs work more like a smart vending machine. Instead of matching buyers with sellers, AMMs use a mathematical formula and pools of tokens to automatically set prices. Users trade directly with these pools rather than with other traders.
Advantages of AMM Systems
True Permissionless Trading
Anyone can participate in providing liquidity or trading without needing approval from a central authority. This aligns with our vision of financial inclusion, especially in regions where people might be excluded from traditional financial systems.
Community-Powered Liquidity
Instead of relying on big market makers or financial institutions, AMMs allow regular community members to become liquidity providers and earn from their participation. This democratizes market making and distributes earnings more fairly.
Transparent and Fair Pricing
The price is determined by a transparent mathematical formula that everyone can verify on the blockchain. There's no room for price manipulation by powerful traders or hidden order books.
Always-On Markets
Unlike traditional systems that need market makers to be actively managing their orders, AMM pools work 24/7 without human intervention. This enables global participation across all time zones.
Afrocoin's Enhanced AMM Model
At Afrocoin, we've enhanced the standard AMM model to better serve our unique use case of mineral-backed tokens. Unlike typical cryptocurrency tokens, Afrocoin tokens are digital representations of physical mineral coins, similar to how a Krugerrand's value is tied to gold prices.
Dual-Factor Pricing Model:
AMM Pool Dynamics:
- Traditional supply and demand mechanics
- Automated price adjustments based on trades
- Community-provided liquidity
Real-World Price Integration:
- Live mineral spot price feeds
- Price oracle verification system
- Automated pool rebalancing
Mineral Spot Price Balancing
Our balancing mechanism maintains alignment between token prices and physical mineral values through a systematic daily process that ensures accuracy and reliability.
Daily Update Process:
- 1
Price Oracle Integration
Automatic fetching of current mineral spot prices from trusted oracles
- 2
Multi-Source Verification
Cross-referencing prices across multiple trusted sources for accuracy
- 3
Smart Contract Execution
Automatic pool ratio adjustments to reflect current mineral prices
- 4
Market Alignment
Final verification of token prices against physical asset values
Knowledge Check
Question 1 of 5
What is the primary reason Afrocoin adopted blockchain technology?