<div class="mce-toc">
<h2>Table of Contents</h2>
<ul>
<li><a href="#mcetoc_1g6a0kq0u14">About IDO</a></li>
<li><a href="#mcetoc_1g6a0kq0u15">IDO in Japan, legal or illegal？</a></li>
<li><a href="#mcetoc_1g6a0kq0u16">Against the Amendment Fund Settlement Act is illegal</a></li>
<li><a href="#mcetoc_1g6a0kq0u17">Smart Contract, neither individual nor coporation</a></li>
<li><a href="#mcetoc_1g6a0kq0u18">Illegal cases are possible</a></li>
<li><a href="#mcetoc_1g6a0kq0u19">In conclusion,</a></li>
</ul>
</div>
ICO, IEO and IDO are some of the main ways in fundraising using cryptocurrency assets. As using ICO and IEO may have some risks and disadvantages, as well as the support for investors is not good, these methods are dying down.
On the other hand,&nbsp; IDO has become extremely outstanding from 2021. IDO is a token sale using DEX (Decentralized Exchange). In many cases, purchasing token in a cheaper price is possible, or sometimes it can push the list price into hundred times higher, it attracts a great deal of attention from investors.
In Japan, the appearance of DEX is still uncertain, and also there isn&rsquo;t a considerable example about IDO development, so there are still many questions whether implementing IDO in Japan is legal or not. Registration to the government and its approval is essential for raising large funds.
<h2 id="mcetoc_1g6a0kq0u14" style="text-align: justify;">About IDO</h2>
IDO (Initial DEX Offering) is a crypto-assets token aimed at event fundraising through a DEX (Decentralized Exchange). As DEX connects to all the blockchain terminals through P2P system without centralized management like CEX (Centralised exchange), it allows individual crypto-assets transitions.&nbsp;
<img class="responsiveImage" src="http://api.relipa.global/storage/466/DEX.jpg" alt="IDO in DEX in Japan" />
IDO developers get fund by appealling investors through many ways of outlining fundraising purpose roadmap or detailed project description. DEX is a type of DeFi (Decentralized Finance) developed based on Ethereum blockchain which has smart contract function. Especially, in 2021, with the heat of Ethereum related businesses such as NFT or Metaverse, along with the expectation for its future, the attention level on IDO is becoming surprisingly higher and higher.&nbsp; In many cases, it can attract a great deal of money in just a short time as cheaper purchasing price and higher list price is possible.
Moreover, the cost in IDO is lower without verification like IEO, everyone can easily hold one. Maybe this, along with the popularity and trust that is gained in the Ethereum economy as described above, supports the rapid increase of IDO.
Also see：<a href="https://relipasoft.com/blog/dex-amm/">https://relipasoft.com/blog/dex-amm/</a>&nbsp;
<h2 id="mcetoc_1g6a0kq0u15" style="text-align: justify;">IDO in Japan, legal or illegal？</h2>
Everyone can hold a IDO without difficulties, so there may be some huge gap between the merits and demerits of the project description. As there can be some scam projects, careful checking is essential when deciding to invest.&nbsp;
From legal perspective, this risky IDO is maybe not problematic. There is rarely no cases of IDO development in Japan, mainly are DEX based projects outsourcing from overseas. But, from the present view, there will obviously be many projects which are familiar with IDO in a near future.&nbsp;
So, it is necessary to dig deeper into IDO from the legal perspective.&nbsp;
<h2 id="mcetoc_1g6a0kq0u16" style="text-align: justify;">Against the Amendment Fund Settlement Act is illegal</h2>
When crypto-asset transactions are viewed from legal perspective, according to the "<a title="Amendment Fund Settlement Act" href="https://elaws.e-gov.go.jp/document?lawid=421AC0000000059" target="_blank" rel="noopener">Amendment Fund Settlement Act (commonly known as the Virtual Currency Law in Japan)</a>", users are required to register as a "Crypto-asset exchange Company" to continuously buy and sell, exchange, act as a intermediation, agency or manage money.
In other words, if you do not officially register, even though you are continuously acting as an agency for crypto-asset transactions, it is against the Amendment Funds Settlement Act. There are many domestic Crypto-asset exchange Companies such as Coincheck, bitFlyer, GMO Coin&hellip;, but all of them operate a centralized cryptocurrency exchange (CEX), which is officially registered only after being examinated by the Financial Services Agency.&nbsp;
In the case of DEX, there is no managers like in CEX. Users trade crypto assets daily, but the mediator is Ethereum Smart contract (or a type of software feature), so, users do not just keep a wallet, they personally manage theirs without the intermediations from agencies.
<h2 id="mcetoc_1g6a0kq0u17" style="text-align: justify;">Smart Contract, neither individual nor coporation</h2>
Smart contract is a computer protocol which is programmed to implement certain transitions according to predetermined conditions. It is automatically decided in agreement with the crypto-assets price and smart contract algorithm. In short, neither individual nor corporation acts as an intermediary of transitions,&nbsp; this becomes the issue of whether DEX and IDO are legal or not.&nbsp;
Under the Amendment Funds Settlement Act, crypto-asset traders are considered to be legal individuals or companies, and are not supposed to be DEX based on smart contract, which is an epoch-making function of Ethereum blockchain in the first place.&nbsp; Therefore, the Financial Services Agency does not recognize the existence of DEX, and the current situation is that the IDO conducted at DEX is not under legally control. In other words, it can not be said that IDOs are lawful or unlawful.
However, speaking exactly, there are some cases where even DEX may require registration with the Financial Services Agency, so let's take a look about the illegal cases below.
<h2 id="mcetoc_1g6a0kq0u18" style="text-align: justify;">Illegal cases are possible</h2>
Matching sellers and buyers is essential for successful cryptocurrency transactions. If there is a seller who wants to sell a proper amount of units of the crypto asset A, and a buyer who wants to buy the same quantity at the same price appears, the transaction is formed. However, even if there are sellers and buyers, they cannot be matched properly without the existence and function of the intermediaries.
In the conventional crypto-asset transactions including stock or debt exchanges that have been carried out at CEX, the order book model in which a centralized manager receives a commission in return for matching the seller and the buyer is common practice. However, DEX has implemented AMM (Automatic Market Maker), in which all these are done by smart contract. Therefore, as already mentioned, DEX is not a legally subject because it is intervened by computer protocols, not individuals or coporations.
However, there are few cases in DEX that utilize not only AMM but also the order book model. The order book is done off-chain outside the blockchain, and the settlement is done on the blockchain. In this case, in order to maintain the order book, at least one person will be involved, so strictly speaking, it is regarded as a "Crypto-asset exchange Company" under the Amandment Funds Settlement Act. Therefore, it may be considered illegal to operate this type of DEX without filling or registering with the Financial Services Agency and holding an IDO there.
In an extreme case, a stock exchange cannot operate trading functions without obtaining a license to be a "Financial instruments exchange" under the Financial Instruments and Exchange Act. What if a stock exchange is operated without permission and some company lists its shares and funds without permission?&nbsp; &nbsp; Needless to say, that it is clearly illegal.
AMM method is not considered illegal at the moment, but since DEX doesn&rsquo;t require verification and can be held by anyone, project description is a mixture of goods and bads. Some are worth investment, while others have been evolved into fraud. If such risky and uncertain cases continue to occur frequently, it is quite possible that rules will become much stricter.
<h2 id="mcetoc_1g6a0kq0u19" style="text-align: justify;">In conclusion,</h2>
IDO, allows speedy fundraising without verification, can push the list price of the token to hundred times higher, is attracting a great deal of attention from start-up enterprises and inventors who want to drive their projects forward.&nbsp;
Let us support your IDO. If you want to develop Ethereum related projects such as NFT and Metaverse, choose Relipa as for many advantages. We commit to your success.&nbsp;
&nbsp;

In recent years, financing using cryptographic assets (virtual currency) has become popular. There are multiple ways to do this, but the one that has increased sharply in 2021 is "IDO."
In the past, when it came to raising funds, it was common to get a loan from a bank or issue shares. These methods require the intervention of a third party and are not possible without certain qualifications and conditions. In that respect, IDO can be held by anyone using a dedicated platform, and there is no need to pay interest or dividends, or even repay it. Moreover, because it utilizes blockchain technology backed by smart contracts, it has the advantages of lower cost and much faster financing than before. These merits are the priming water, and the attention for IDO is increasing.
<div class="mce-toc">
<h2>Table of Contents</h2>
<ul>
<li><a href="#mcetoc_1ga8hfiq1d8">1. What is IDO?</a></li>
<li><a href="#mcetoc_1ga8hfiq1d9">2. IDO and ICO</a></li>
<li><a href="#mcetoc_1ga8hfiq1da">3. Why some projects do not use ICO?</a></li>
<li><a href="#mcetoc_1ga8hfiq1db">4. IEO</a></li>
<li><a href="#mcetoc_1ga8hfiq1dc">5. Why IDO is actively used</a></li>
<li><a href="#mcetoc_1ga8hfiq1dd">6. Steps to IDO</a></li>
<li><a href="#mcetoc_1ga8hfiq1de">7. The future of IDO</a></li>
<li><a href="#mcetoc_1ga8hfiq1df">In conclusion</a></li>
</ul>
</div>
<h2 id="mcetoc_1ga8hfiq1d8" style="text-align: justify;">1. What is IDO?</h2>
IDO stands for "Initial DEX Offering" and means an event to raise funds by issuing crypto assets on DEX (Decentralized Exchange). With DEX, users can directly exchange crypto assets (tokens) without going through a virtual currency exchange (administrator). In other words, even if you do not set up a wallet on the virtual currency exchange, you can trade using the wallet (non-cast dial wallet) that you manage. This makes the risk of hacking as close to zero as possible.
DEX runs primarily on the Ethereum blockchain, where crypto assets are priced by smart contract algorithms rather than specific administrators. IDO issues its own crypto assets with this DEX. To hold an IDO, you need a funding purpose. The point is how to collect a lot of funds from investors by skillfully appealing the purpose, the market size of newly issued crypto assets, and the future potential.
The image is similar to IPO (Initial Public Offering). IPO is a way for unlisted companies to list new shares and raise funds. Unlike stocks, IDOs do not have voting rights, dividends, shareholder benefits, etc., but the idea of ​​raising funds in the form of crypto assets by announcing them before they are traded on cryptocurrency exchanges is similar to that of IPOs. It can be said that. When newly issued crypto assets start trading in the market, they can rise up to several tens of times in a short period of time, and investors can make huge profits. On the contrary, if the price drops significantly, it will be a big loss. At DEX, there is no review by a specific manager, so anyone planning an IDO, whether a group or an individual, can hold an IDO. Of course, IDO could end in failure because investors wouldn't be interested if the project itself wasn't attractive.
<h2 id="mcetoc_1ga8hfiq1d9" style="text-align: justify;">2. IDO and ICO</h2>
ICO is similar to IDO. ICO stands for "Initial Coin Offering" and is one of the financing methods using original crypto assets like IDO. ICO first appeared around the time of the cryptocurrency boom in 2017, appealing to investors the promising potential of planned projects and raising funds. It is also called "token sale" or "token auction" for easy understanding, and it takes a style in which the issuer of crypto assets and investors trade directly.
Since there is no screening, it is easy to enter and you can buy crypto assets cheaply before listing on the cryptocurrency exchange, so a lot of money was invested by speculators who expect the price to increase after listing.
<h2 id="mcetoc_1ga8hfiq1da" style="text-align: justify;">3. Why some projects do not use ICO?</h2>
The feature of ICO is that it is very easy to enter because there is no need for it to be examined or screened. Since it uses blockchain technology, it has attracted a lot of attention because it does not require fees and transactions are speedy, but the content of the project was also a mixture of boulders.
There were some projects that didn't last long even though they were good, and some of them vanished after raising funds, and fraudulent acts were rampant. As a result, creditworthiness for ICOs plummeted in 2018, fading out as a way to raise funds.
<h2 id="mcetoc_1ga8hfiq1db" style="text-align: justify;">4. IEO</h2>
When the difficulty of raising funds by ICO became apparent, "IEO (Initial Exchange Offering)" came next. IEO is a method of raising funds through a centralized exchange (virtual currency exchange).
Reflecting on the fact that fraudulent activities occurred frequently in the ICO without the existence of an administrator, at the IEO, the contents are examined in the exchange of newly issued cryptographic assets and projects, and only the stocks that pass through them raise funds. A system was built to do this task. Since the screening criteria are not lenient, it is not easy to use it, so the reliability of crypto assets and projects has increased, making it a safer investment destination for investors compared to ICO. However, it is difficult for investors to enter the market compared to ICOs and IDOs because of the conditions such as opening an account on a cryptocurrency exchange and purchasing tokens.
<h2 id="mcetoc_1ga8hfiq1dc" style="text-align: justify;">5. Why IDO is actively used</h2>
IDO is more advanced than IEO and has attracted the attention of investors. It was held little by little in 2020, and has increased explosively since the beginning of 2021. Let's dig into why.
IEO is a great way to raise money, but screening has raised the barriers to enter for token issuers. As mentioned above, the investor must also clear the conditions such as the need to open an account, so it is undeniable that the market lacks excitement. Therefore, there was a need for a system that could attract a wide range of investors without screening. However, high-risk mechanisms such as ICOs do not earn investor confidence.
IDO was developed in line with this trend. DEX used in IDO is Decentralized Finance, which allows users to make direct loans and remittances 24 hours a day, 365 days a year, without revealing their identities, without going through a centralized entity such as a bank or securities company. With Ethereum's smart contracts, it will be possible to provide services on the blockchain that are connected to various external sources such as finance, securities, insurance, and market data. This is Decentralized Finance, and one of the many innovative smart contracts is DEX (Decentralized Exchange).
Remittances are fast, anyone can participate without presenting any ID&rsquo;s, and all transactions are recorded on the blockchain, ensuring high transparency. These conveniences and reliability of IDOs that utilize DEX are very attractive to both token issuers and investors. As evidence of this, Decentralized Finance has expanded rapidly to a market size of 7.8 billion dollars, about five times in the year from 2020 to 2009, but the number of IDOs has also increased sharply in response to this trend. It has been increasing. (Nikkei)
Reference: <a title="IDO Development in Japan, legal or not? " href="../../blogs/ido-development-in-japan-legal-or-not" target="_blank" rel="noopener">IDO Development in Japan, legal or not? </a>
<h2 id="mcetoc_1ga8hfiq1dd" style="text-align: justify;">6. Steps to IDO</h2>
IDO is done using the IDO platform within DEX. Popular IDO platforms include "Polkastarter", "DAO Maker" and "Solstarter". By the way, the NFT game "Widiland", which our company (Relipa) is about to launch in 2022, started IDO in December 2021 at LuaStarter, BSCStation, and Polkabridge.
The most important thing in doing an IDO is to be able to present an attractive project that will appeal to many investors. White papers are the most important criteria for investment by many investors. IDO will succeed if it can publish a white paper on the concept and roadmap of the project, the scale and price of the tokens to be issued, the name, what kind of technology to adopt, etc., and appeal to the future with convincing contents. The rate can be expected to increase. Carefully create the white paper and choose which platform to use for IDO. The point of selection is high liquidity (= ease of buying and selling). Popular platforms such as Polkastarter have a large number of traders and can ensure high liquidity, which makes IDO easy to succeed. Be aware that in illiquid and volatile markets, positive results cannot be expected and are dangerous.
<h2 id="mcetoc_1ga8hfiq1de" style="text-align: justify;">7. The future of IDO</h2>
As of December 2021, multiple IDOs are held in a week, and it is not uncommon for the price to be several tens of times higher after the token sale starts. The fact that IDOs are active means that there are so many projects. Some projects are sloppy, and it's hard to say that everything is successful. However, funding from crypto assets is used as it is for various projects on the blockchain, and the Metaverse (virtual space) is particularly noteworthy.
Business development utilizing NFT (Non-Fungible Token) is becoming active in some of the Metaverse that enables games, shopping, and auctions through avatars in virtual space. NFT uses blockchain to link digital content such as digital art, music, videos, and game characters with irreplaceable tokens, proving its uniqueness. This asset value is highly valued by investors and the wealthy, and in 2021, the number of NFT works that are bought and sold at high prices using crypto assets is increasing rapidly.
The future market size of Metaverse is said to be 7.8 billion dollars, and it is thought that NFTs that can be bought and sold even in virtual space will occupy a part of it. Cryptocurrency assets such as Ethereum are indispensable there, and it can be said that IDO plays an endless role in procuring the resources. On the other hand, however, crypto assets are vulnerable to money laundering and fraud, and are always at risk of misuse. In addition, DEX is not approved by the Financial Services Agency, and the legislation has not caught up, so even if you get into some trouble, you are responsible for everything. If these risks are mitigated and more convenient and secure, the need for IDOs will surely increase.
<h2 id="mcetoc_1ga8hfiq1df" style="text-align: justify;">In conclusion</h2>
Blockchain technology, which is speedy and has no fees, is rapidly being used in all fields beyond the boundaries of the industry. The crypto asset market is at the top of the list, and if these markets, such as NFTs and Defi, which caused a big boom in 2021, continue to expand, the needs of IDOs will increase dramatically.
Taking advantage of the strengths unique to outsource development, our services exceed expectations at a low cost, with the high technical capabilities and abundant experience from the engineers who are familiar with Japanese and well-qualified Bridge SE, IT Comtor team.
If you have any requests for NFT development or other Blockchain development, please feel free to contact us. We are&nbsp;sincerely&nbsp;looking forward for you.
Also see:&nbsp;<a title="Relipa's NFT Development Service (Japanese)" href="https://relipasoft.com/nft-development/" target="_blank" rel="noopener">Relipa's NFT Development Service (Japanese - Translated English)</a>

You think you know well about IDO?

<div class="mce-toc">
<h2>Table of Contents</h2>
<ul>
<li><a href="#mcetoc_1g6a0l7463c">Liquidity is key in DEX Operation</a>
<ul>
<li><a href="#mcetoc_1g6a0l7463d">Liquidity Pool</a></li>
<li><a href="#mcetoc_1g6a0l7463e">Liquidity Mining</a></li>
</ul>
</li>
<li><a href="#mcetoc_1g6a0l7463f">AMM is overwhelmingly effective in DEX</a>
<ul>
<li><a href="#mcetoc_1g6a0l7463g">About AMM</a></li>
<li><a href="#mcetoc_1g6a0l7463h">Mechanism of AMM&nbsp;</a></li>
</ul>
</li>
<li><a href="#mcetoc_1g6a0l7463i">Variation loss is possible in AMM Method</a></li>
<li><a href="#mcetoc_1g6a0l7463j">In conclusion,</a></li>
</ul>
</div>
DEX (Decentralized Exchange) allows users buy, sell and exchange crypto-assets without managers or intermediaries。As everyone can join DeX at a low price, process speed is significant without identity verification, the usability of DeX is highly evaluated, and its presence among all the DeFi services is now becoming more and more noticeable.&nbsp;
The liquidity of DeX is supported by AMM (Automated Market Maker). Since AMM autonomously provides liquidity in the market, users can freely trade crypto-assets whenever they want. Conversely, programming a high-quality AMM is essential for developing a reliable DEX.
In this blog, we will find out more about the important role of AMM, and the reasons why it has been used widely in DEX development.&nbsp;
<h2 id="mcetoc_1g6a0l7463c" style="text-align: justify;">Liquidity is key in DEX Operation</h2>
Knowledge about DEX liquidity increase mechanism is essential for a deep understanding about AMM. How to increase liquidity turns out to be the key point in developing a high quality DEX. The first things to mention are Liquidity Pool and Liquidity Mining, which are the core principles of DEX Liquidity.&nbsp;
<h3 id="mcetoc_1g6a0l7463d" style="text-align: justify;">Liquidity Pool</h3>
DEX is an crypto-asset exchange, which allows users buy and sell directly from their wallet without&nbsp; centralized managers. In order for DEX to operate smoothly and continuously as a trading market, it is essential to guarantee the liquidity.
Liquidity refers to the ease of selling crypto-assets. Liquidity is high if users can sell cryptocurrencies they own easily and fast in the market. Otherwise, liquidity is low if there are no buyers and transitions are hard to form. Of course, with high liquidity, the market will reach its complete growth and attract a great deal of attention from investors. Therefore, all DEX developers are seeking the way in which they can increase liquidity.&nbsp;The level of liquidity depends largely on the popularity of crypto assets, but "Liquidity pool" in DEX has a average effects on liquidity. When launching DEX, the investors, called Liquidity Provider (now LP), form the market by offering token in form of equal sets. This token is provided to a "Liquidity pool", a type of smart contract that is programmed to automatically form a transactions without an intermediary or administrator.
As later introduction, in order for DEX to operate, it is important that tokens provided by LP in pair or a set of multiple tokens are accumulated in the liquidity pool with a certain volume. In the transactions on DEX, users put the token they want to sell into the pool and then withdraw another token they want to buy. All of these transactions are done automatically by smart contracts, which is called AMM (Automated Market Maker). If there are many tokens in the liquidity pool provided by LP, it will be easier to form the transactions, but if it is too few, the trade can not be formed.
In other words, the more plentiful the tokens provided by LP are, the higher liquidity will be.&nbsp;
<h3 id="mcetoc_1g6a0l7463e" style="text-align: justify;">Liquidity Mining</h3>
The price of the tokens that LP provides to the liquidity pool do not always keep the upward trend, so LP carries a considerable risk of losing assets. LP provides token under the awareness of these risks, because the only thing they can do is hoping for a reasonable return. Each DEX project provides attractive incentives to make sure of the stableness of liquidity and encourages many investors to become LPs. The main axis is "liquidity mining".
Liquidity mining specifically includes free distribution of LP tokens, distribution of transaction fees within the service, and even thousand percentage of extraordinary interest. LP tokens are evidences that the tokens have been put into the pool and are used for exchange when provided tokens are withdrew from the liquidity pool. If you deposit LP tokens on an exchange farm, you will earn farming income. Transaction fees are structured so that they can be received in suitable proportion to their share to the whole liquidity.
In other words, if the liquidity of DEX is sufficiently secured and many users trade frequently, the value of LP tokens will increase and the commission income to be distributed will also increase. If you raise the time when the price of the provided tokens increase, you can gain income, and if you sell them, you can get capital gains. This is the real pleasure of liquidity mining, and the results will decide the true value of the DEX project.
Also see: <a href="https://relipasoft.com/blog/dex-amm/">https://relipasoft.com/blog/dex-amm/</a>&nbsp;
<h2 id="mcetoc_1g6a0l7463f" style="text-align: justify;">AMM is overwhelmingly effective in DEX</h2>
<img class="responsiveImage" src="http://api.relipa.global/storage/463/2.jpg" alt="AMM - DEX" />
<h3 id="mcetoc_1g6a0l7463g" style="text-align: justify;">About AMM</h3>
In CEX (Centralized Exchange), order book model is used to match traders who want to sell tokens with those who want to buy them. The order book model is the same as stocks and government bonds, in which the intermediaries search for a buyer who meets the condition presented by the seller of "How much you want to sell for ~ JPY" . In other words, the price at the time of trading is fixed.
On the other hand, AMM, which is often used in DEX, uses a pre-built formula to automatically calculate the price according to the amount of token that the user puts in and withdraws from the pool. In other words, at AMM, smart contracts are autonomously determined, rather than traders setting prices and selling. In addition, there is an advantage that transaction fees can be reduced and speedy transactions are possible because no intermediaries are involved. The order book method requires the intervention of an intermediary for each transaction, which is time-consuming and tends to slow down the transaction speed. For Ethereum, the scalability problems of increasing fees and delays in transactions are serious, and in order to solve these problems, there is an increasing demand for the AMM method, which enables cheap and speedy trading.
<h3 id="mcetoc_1g6a0l7463h" style="text-align: justify;">Mechanism of AMM&nbsp;</h3>
As a basic pattern of DEX, it is common that two types of tokens are stocked in the liquidity pool. When a trader adds one and buys the other, AMM's algorithm is programmed to lower the price of the token of which the quantity increased and increase the price of the other token.
To make the case easier to understand, let's assume a simplified fictional DEX and explain it in detailed.
Supposing that LP provides two types of token to the liquidity pool, A and B.
The price is "1A = 200 yen" and "1B = 500 yen".
The quantity of A is represented by "a", the quantity of B is represented by "b", and the program is set so that "a x b = 4,000". This means that the trader is required to maintain a constant of "4,000" for the quantities of both tokens at all times, no matter what the transaction is. By the way, the formula defines constant quantities of these two types of tokens was introduced in Uniswap V2 of DEX.
In DEX, when LP provides tokens, it is a rule to provide two tokens in the same amount. Therefore, supposing that the total value of tokens A and B is the same amount of "20,000 JPY". Then you can see that the amount of asset is "a = 100A (20,000 JPY&divide; 200 JPY= 100)" and "b = 40B (20,000 JPY&divide; 500 JPY= 40)". DEX will probably start from this state.
If the trader adds 100A to the pool, the token amount a will be 200A because 100A is added to the original 100A. Here, in order to maintain the constant "4,000", the token amount b of B is reduced to 20B (4,000 &divide; 200 = 20). And the price of 1A will drop to 100 yen as a increases (20,000 JPY&divide; 200 = 100 JPY), and the price of 1B will increase to 1,000 yen as b decreases (20,000 JPY&divide; 20 = 1,000 JPY).
So all transactions are maintained by the autonomous work of smart contracts built into AMM.
Actually, DEX is not as simple as this. The higher the liquidity, the more complicated the movement, because there are more tokens in the pool and the number of trades will increase.
There are examples of the order book method being implemented in DEX, but the current situation is that the AMM method is overwhelmingly more common. The main reason is that the Ethereum blockchain, as mentioned above, emphasizes low fees and speedy trading, so it is inevitably impractical for the order book method, which may take time and effort.
<h2 id="mcetoc_1g6a0l7463i" style="text-align: justify;">Variation loss is possible in AMM Method</h2>
When adopting the AMM method in DEX development, a risk to consider is &ldquo;variation loss&rdquo;. With AMM, tokens in the liquidity pool are constantly changing in price. Then, in some aspects, the value of the token may drop excessively, and for LP, the phenomenon that the price was higher before being provided may occur temporarily. This is "fluctuation loss".
For example, if the price of Token A was 1,000 JPY per unit, but if there are unexpectedly many users who sell Token A, the price will drop to 800 JPY, 500 JPY, and so on.&nbsp; This is the mechanism of AMM, so intervening is impossible. However, in this case, if the LP withdraws this token from the liquidity pool by cutting the numbness when the price drops to 500 JPY, a variation loss of 500 JPY per unit will occur . However, if you keep following, it is quite possible that another token will be sold and the value of token A will be pulled back to nearly 1,000 JPY. On the contrary, the loss may exceed 1,000 JPY depending on the situation.
This is considered to be an unavoidable bargain to be a LP. At the same time, as a DEX developer, it's important to keep in mind that it's important to have an attractive incentive that can be remain to compensate for the loss of LPs.
<h2 id="mcetoc_1g6a0l7463j" style="text-align: justify;">In conclusion,</h2>
The key points of DEX development are "Presentation of a project that stimulates investment motivation", "Development of a liquidity pool equipped with excellent AMM", "Selection of crypto assets with future potential", and "Preparation of incentives to attract LP". Developing DEX that meets these requirements is not easy, but if it is successful, a very attractive market will be created.
If you are thinking of enhancing DeFi services such as DEX, feel free to contact us, we will help you to gain success. Our experienced engineers are looking forward to hearing from you.

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