Understanding Afrocoin Pricing
Learn how afrocoin pricing work and participate in pricing using AMM protocol
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In this lesson, we’ll explore how Afrocoin uses decentralized pricing through Automated Market Makers (AMMs) instead of order book. We’ll break down how trades happen, how prices adjust based on supply and demand, and how Afrocoin’s system stays aligned with real-world mineral prices. By the end, we’ll understand how this pricing model supports transparency and accessibility for all investors.
Our Commitment to Accessibility
We haven't adopted blockchain simply because it's an emerging technology. Rather, we adopted it because we believe in its core principles of transparency and trustless architecture. This commitment to transparency was at the forefront when designing our pricing mechanism.
We needed a solution that would enable users from diverse backgrounds. From beginner to experienced investor to participate in the market 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 accessibility.
Order book vs AMM
Traditional Order Book System
Traditional exchanges operate through a centralized order book system, which requires oversight and management by a central authority. This system works like a market place where buyers and sellers list their desired prices in the order book. A central authority must approve and maintains the order book. Exchange happen when sell price match buy price.This means slower execution, and reliance on a central party to manage the process which comes at fee.
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. Reducing trading cost and gaining full transparency.
AMMs work like a smart vending machine. Imagine one sitting in your local shopping center: anyone can stock it with assets and, in return, earn trading fees. In this case, users stock the machine with both a precious metal asset (e.g., a 1oz Gold Krugerrand) and a currency (e.g., USDC). This setup allows traders to:
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
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.
Precious-Metal Spot Price Balancing
Our pool uses balancer AMM rate provider mechanism to maintains alignment between token prices and precious-metal spot price.
Balancing Process:
- 1
Price Oracle Integration
Automatical fetch precious metal spot prices from trusted oracles
- 2
Multi-Source Verification
Cross-referencing prices across multiple trusted sources for accuracy
- 3
Smart Contract Execution
Automatical pool ratio adjustments to reflect current spot prices
- 4
Market Alignment
Final verification of token prices against precious metal spot prices
What We’ve Learned
In this lesson, we explored how Afrocoin’s pricing model is rooted in decentralization, using Automated Market Makers (AMMs) to ensure transparency and accessibility. We compared traditional order book systems to AMMs and saw how Afrocoin leverages smart contracts and liquidity pools to automate trades.
We also looked at how Afrocoin integrates live spot prices through rate provider, ensuring that digital token prices stay closely tied to real-world spot price values. This dual pricing approach helps keep the system stable and investor-friendly.
With this foundation in place, we’re now better equipped to participate in Afrocoin's ecosystem and make informed decisions as investor.
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Knowledge Check
Question 1 of 5
What is the primary reason Afrocoin adopted blockchain technology?