Introduction

The Razor DEX protocol is a peer-to-peer system designed for exchanging tokens on the Movement blockchain. The protocol is implemented as a set of smart contracts; designed to prioritize censorship resistance, security, self-custody, and to function without any trusted intermediaries who may selectively restrict access.

How does Razor DEX compare to a typical market?

To understand how the Razor DEX protocol differs from a traditional exchange, it is helpful to first look at two subjects: how the Automated Market Maker design deviates from traditional central limit order book-based exchanges, and how permissionless systems depart from conventional permissioned systems.

Order Book VS AMM

Most publicly accessible markets use a central limit order book style of exchange, where buyers and sellers create orders organized by price level that are progressively filled as demand shifts. Anyone who has traded stocks through brokerage firms will be familiar with an order book system.

Razor DEX uses an Automated Market Maker (AMM), sometimes referred to as a Constant Function Market Maker, in place of an order book.

At a very high level, an AMM replaces the buy and sell orders in an order book market with a liquidity pool of two assets, both valued relative to each other. As one asset is traded for the other, the relative prices of the two assets shift, and a new market rate for both is determined. In this dynamic, a buyer or seller trades directly with the pool, rather than with specific orders left by other parties.

Permissionless Systems

The second departure from traditional markets is the permissionless and immutable design of the Razor DEX protocol. Permissionless design means that the protocol's services are entirely open for public use, with no ability to selectively restrict who can or cannot use them. Anyone can swap, provide liquidity, or create new markets at will. This is a departure from traditional financial services, which typically restrict access based on geography, wealth status, and age.