amm v4

What Is AMMV4?

AMMV4 represents the next generation of Automated Market Maker (AMM) protocols, utilizing liquidity pools to facilitate trades rather than relying on traditional order books. Building upon previous versions, AMMV4 introduces a modular design that enables customization and layering of fees, pricing rules, and auxiliary features.

Think of AMMV4 as a “self-service exchange counter.” Users deposit two assets into a shared pool, and traders swap between these assets according to the pool’s ratio. Compared to earlier AMMs, AMMV4 allows for customizable fee structures, supports plug-in “modules,” and enables liquidity concentration within specific price ranges to enhance capital efficiency.

How Does AMMV4 Work?

The core mechanism behind AMMV4 is the liquidity pool. A liquidity pool functions as a communal fund containing two or more assets, where pricing is determined by the relative proportions of each asset in the pool.

How does the price change? When someone swaps asset A for asset B, the amount of A increases while B decreases in the pool. The price is then automatically recalculated according to a predetermined curve—a rule embedded in the smart contract, acting like an always-on calculator.

Concentrated liquidity means funds are no longer spread evenly across all prices, but instead targeted within certain price ranges. Imagine channeling water from an entire river into its most frequently used sections to increase “depth,” making trades near common prices smoother and reducing slippage. Slippage refers to the difference between expected and actual execution prices and is typically affected by trade size and pool depth.

AMMV4’s modularity (often called “plug-ins” or hooks) works like adding feature boxes to an exchange counter: dynamic fees, limit orders, stop-loss/take-profit conditions, anti-frontrunning tools, and more can be introduced or combined without altering the protocol’s underlying architecture.

How Does AMMV4 Differ from AMMV3?

AMMV4 further advances scalability and capital efficiency. Compared to AMMV3, it makes “concentrated liquidity” and “multi-tiered fees” easier to integrate, while its modular architecture lets new features be assembled like building blocks.

First, AMMV4 emphasizes a unified pool architecture with plug-and-play modules, minimizing the need to create separate pools for every new feature. Second, fees can be dynamically adjusted based on market conditions or pool status, rather than being fixed. Third, security and strategy modules can be integrated at the contract level—such as restricting large trades’ impact on pools or implementing time-weighted pricing rules.

For users, this means closer-to-target prices, more transparent fees and rules, and a broader array of strategy options. However, it also requires understanding which modules are active in each pool.

Common Use Cases for AMMV4

AMMV4 is primarily used for decentralized swapping, liquidity provision, and strategy-driven trading. Traders can swap assets directly within pools, while liquidity providers earn trading fees by selecting preferred price ranges and fee structures.

On Gate, users commonly engage in two ways: (1) Using Swap for instant exchanges with visible rates and fees; (2) Contributing funds to specific pools via “liquidity mining” or “market making” sections to earn fee shares and potential incentives.

The modular nature of AMMV4 also facilitates the deployment of limit orders and dynamic fees. For example, some pools may only execute trades at certain target prices or automatically increase fees during periods of high volatility to offset risk.

How to Use AMMV4? Beginner’s Guide

In summary: New users interact with AMMV4 primarily through asset swaps or providing liquidity—both processes are straightforward.

Step 1: Prepare assets and tools. Create a Gate account or use a supported self-custody wallet. Ensure you have stablecoins or target tokens and retain a small balance for transaction fees.

Step 2: Select an AMMV4 pool. Review fee rates and pool details on the trading pair page. Check whether features like concentrated liquidity or special modules (limit orders, dynamic fees) are enabled.

Step 3: Execute a swap. Enter your desired swap amount and review the expected execution price and slippage notice. If slippage is high, consider reducing your trade size or choosing a deeper pool.

Step 4: Provide liquidity. Choose a price range (e.g., concentrate funds between 1.00–1.10), enter the amounts for both assets, and the system will display your share of the pool and projected sources of returns.

Step 5: Monitor and adjust. Track fee income and range utilization via your portfolio or market making dashboard. Adjust your price range or withdraw funds as needed to manage risk.

How Are Fees and Earnings Calculated in AMMV4?

Swap fees are generally calculated as “trade amount × fee rate.” For example, with a 0.05% fee rate, swapping 1,000 USDT incurs approximately 0.5 USDT in fees. Some pools utilize dynamic fee models, which may increase rates during volatile periods to protect the pool.

Liquidity provider earnings come mainly from sharing trading fees, distributed according to your pool share—think of this as a “receipt” representing your proportional entitlement based on your contribution.

If you opt for concentrated liquidity, your potential returns and capital efficiency rise but so does the risk of idle funds if prices move outside your chosen range. Selecting commonly traded ranges or diversifying across several ranges are standard strategies to boost utilization.

What Are the Risks of AMMV4? How Can They Be Mitigated?

The most common risk is impermanent loss—the “opportunity cost” of missing out on asset price movements. If one asset’s price shifts significantly, your share in the pool rebalances accordingly and may underperform simply holding that asset directly.

There is also smart contract risk: since smart contracts are self-executing code robots, any bugs or exploits can lead to fund losses. Choosing audited pools with risk control modules helps reduce such risks.

Frontrunning and MEV (Maximal Extractable Value) present additional challenges—where participants with informational advantages reorder transactions to their benefit. Enabling anti-frontrunning modules, setting reasonable slippage limits, and breaking up trades during volatile periods are proven mitigation strategies.

Additionally, stablecoin depegging and network congestion can affect swaps and settlements. Keeping reserve funds on hand and timing trades during less congested periods can help reduce uncertainty.

What Are the Trends in AMMV4 Development?

From late 2024 into 2025, the industry is standardizing modular interfaces for AMMV4—making features like limit orders, dynamic fees, and anti-frontrunning easier to reuse and combine. The proportion of concentrated liquidity continues to grow, driving greater market depth from equivalent capital.

Support for cross-chain functionality and layer-2 networks is also becoming mainstream to lower costs and increase speed. Compliance and auditing are now industry norms; leading products prioritize risk testing for new modules and transparent disclosures to help users understand each pool’s rules.

Key Takeaways & Summary for AMMV4

AMMV4 takes automated market making into a new era of modularity and concentration. It retains the simplicity of liquidity pool trading while boosting efficiency and flexibility through plug-in features and concentrated liquidity options. For traders, AMMV4 offers executions closer to target prices with predictable fees; for liquidity providers, it delivers higher capital efficiency with customizable strategies. However, richer module configurations mean users must read pool documentation carefully to understand range settings and risk sources. On Gate, starting with small swaps or narrow ranges before progressing to multi-range setups or activating strategy modules is a prudent approach balancing learning with risk management.

FAQ

I’ve heard that AMM V4 offers lower fees than previous versions—how much can I actually save?

AMM V4 optimizes trade routing and batch settlement mechanisms, typically reducing gas costs by 20–40%. The actual savings depend on trading pair liquidity depth and network congestion. For smaller trades on Gate, V4 delivers the most noticeable cost advantage; operating during off-peak hours ensures optimal rates.

How do earnings for AMM V4 liquidity providers differ from V3?

V4 introduces a dynamic fee mechanism—liquidity provider earnings are no longer fixed but adjust in real time based on trade slippage and market volatility. This means earnings are lower but safer during high-liquidity periods; in volatile markets, potential returns rise alongside increased impermanent loss risk. Beginners should start with stable trading pairs to gradually understand V4’s earning model.

Are there any requirements to use AMM V4 on Gate?

Gate users can access AMM V4 without extra verification—just complete basic account setup. However, when providing liquidity you must ensure your wallet balance covers initial capital plus gas fees; it’s advisable to keep a 10–20% buffer. For first-time users, start small to get familiar with the process before increasing your stake.

If I lose money using AMM V4 by mistake, can I recover those losses?

Impermanent loss in AMM V4 is a market risk that cannot be directly recovered—but you can mitigate its impact by choosing low-volatility pairs, shortening holding periods, or employing hedging strategies. Regularly monitor your positions; if persistent losses occur, adjust your liquidity allocation promptly and use Gate’s risk management tools to set alert thresholds.

Is AMM V4 suitable for long-term liquidity provision?

AMM V4 is generally better suited for medium- or short-term strategies rather than passive long-term holding. Over long periods, impermanent loss may accumulate significantly during extreme market moves. For long-term participation, opt for stablecoin pairs or low-volatility assets and regularly rebalance your positions. On Gate, you can enable auto-compounding features to enhance long-term returns.