# The ScoutX AMM ## AMM High-Level Breakdown ScoutX is a prediction protocol that provides users with the ability to predict the future earnings of athletes. Since these outcomes are non-binary (i.e. scalar outcomes) users are able to go **long** or **short** on a Player Token. Each option here represents a token and the price of these tokens is determined by the **AMM's Pricing Function.** {% hint style="info" %} Feel free to read our [**Buying Player Tokens**](/getting-started/buying-player-tokens.md) and [**Selling Player Tokens**](/getting-started/selling-player-tokens.md) sections for a clear example of how buying and selling Long and Short tokens works. {% endhint %} We employed the Fixed Product Market Maker (FPMM) to form the basis of our AMM. The FPMM uses similar mechanisms to create liquidity pools like Uniswap and Balancer. When a user buys one token, the price of that token (i.e. Long Token) increases while the price of the other token (i.e. Short Token) decreases. In a basic sense, an FPMM works in the following way: 1. A user wishes to buy **100 USDC of the Long token** for Novak Djokovic 1. The sum of both Long and Short Prices **must always equal $1** 2. The AMM mints 100 Long and Short tokens each, which cumulatively equals 100 USDC of new tokens for Novak Djokovic 1. The AMM now has an increased number of long and short tokens 3. The AMM then determines how many Long Tokens need to be given to the user so that the prices return to **Long + Short = 1**. By doing so, there are now more Short tokens than Long tokens; thus, **the price of the Long token has increased**, while **the price of the Short token has decreased.** 4. The user receives a price between what the price was before they bought the token and what the price was after they bought the token. This way, each player has their own Long/Short pair controlled by the FPMM. The initial liquidity for these players is determined off-chain, and liquidity may increase during a season at any time due to trading activity. However, it's important to note that at the end of the season, our **pricing oracle** will publish settlement prices for **each of the players and their Long/Short tokens**. In the end, every owner of each token will be able to redeem their collateral via our conditional tokens contract. ### Pros & Cons Involved with the AMM The AMM design implemented is a tried and tested AMM used widely across prediction markets. #### Pros 1. **Trade Anytime:** An AMM allows customers to trade at any time without needing a seller on the other side to facilitate the counter position 2. **Clear Pricing:** the AMM’s pricing function clearly displays the current price and what price the customer will get for whichever trade size they choose. This allows the customer to make trades with clarity on what prices they will be receiving. #### Cons 1. **Slippage:** Because trading is taking place along a curve and the market is relatively new, the amount of liquidity allocated to each player may restrict large value trades at the beginning 1. ScoutX is working hard to bring in more liquidity providers who will add liquidity to the market and work to ensure that larger, higher-value trades can occur. **Detailed AMM Documentation will be uploaded soon...** --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://litepaper.scoutx.io/how-it-works/the-scoutx-amm.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.