Order Book vs Automated Market Maker (AMM)

Here are some pros and cons of AMMs and order books:

AMMs:

Pros:

Simplicity: AMMs are generally easier to use than order books, as they do not require users to specify a particular price at which they want to buy or sell an asset.

Efficiency: AMMs can facilitate trades more quickly than order books, as they do not require a matching order to be found before a trade can be executed.

Accessibility: AMMs can be used by anyone, regardless of their trading experience or knowledge.

Cons: Lack of control: Users have less control over the price at which a trade is executed with an AMM, as the price is determined by a mathematical formula based on supply and demand.

Lack of liquidity: AMMs may not always have sufficient liquidity to facilitate trades, especially for smaller or less popular assets.

Price slippage: The price of an asset may fluctuate significantly between the time a trade is initiated and the time it is completed, resulting in price slippage.

Order books:

Pros:

Customisation: Users have more control over the price at which a trade is executed with an order book, as they can specify a particular price at which they want to buy or sell an asset.

Liquidity: Order books typically have greater liquidity than AMMs, as they match buyers and sellers who are willing to trade at a specific price.

Price stability: Order books tend to have more stable prices than AMMs, as trades are only executed when there is a matching order at the same price.

Cons:

Complexity: Order books may be more difficult to use than AMMs, as users need to understand how to place and cancel orders at specific prices.

Slower trades: Order books may take longer to complete trades, as they require a matching order to be found before a trade can be executed.