Binance is jumping on the decentralized finance bandwagon but not by using a decentralized protocol but by relying on a centralized protocol.

Launched Binance today is a “centralized” pool of Automated Market Maker (AMM), which allows liquidity providers to reap benefits and profits from trading fees.

The AMM pool, called “Binance Liquid Swap,” will contain various liquidity pools with the functionality of real-time cryptocurrency trading.

Binance says that the AMM pricing model helps provide more stable prices and lower fees compared to the order book model used by cryptocurrency exchanges.

Where order book exchanges allow two types of orders to be placed:

• Market order to buy or sell a specific digital currency instantly at the available price.
• A limit order by buying or selling a digital currency at a specific price by entering the order in the order book.

On the other hand, the AMM platform uses different algorithms or pre-defined formulas and pools liquidity together to create the markets.

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Therefore, the AMM platform helps to provide liquidity regardless of the order size.

At launch, Binance Liquid Swap will support three trading pairs for liquidity providers:

USDT/BUSD, BUSD/DAI and USDT/DAI.

As for the amount of interest and trading fees offered by Binance Liquid Swap, it is not known yet.

The new service offered by Binance is a direct competitor to Uniswap which is one of the leading decentralized trading platforms in terms of trading volumes. Uniswap follows the AMM model and distributes all the collected trading fees (0.30%) as bonuses to liquidity providers in any pool.

The CEO of Binance stated:

We hope to further grow the DeFi market, through the central AMM pool.

We are looking to provide liquidity in spot swaps as DeFi products attract more volume and participants.

By designing a stimulating pool that benefits our community.

For your information, Binance already has a decentralized trading platform (DEX) and uses a periodic auction to fulfill orders on that platform, thus removing the concept of market makers and buyers.

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It is not clear why Binance launched this new AMM pool instead of adding it directly to its decentralized platform?

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