Orderbook DEXs

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In the previous tutorial, we discussed AMM (Automated Market Maker) and how it enables instant token exchange with liquidity pools, operating in a vending machine-style manner. AMMs aren’t the only way to trade. Before DeFi introduced AMMs, order books were already in use in traditional finance, especially in the stock market. Orderbooks are more sophisticated, and they have their benefits that make them more desirable to trading with AMMs.

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What Is an Orderbook

In crypto (and in traditional finance), an orderbook is a list of all the open buy and sell orders for a particular trading pair. Each time someone wants to buy or sell a token, they submit an order which is just a message that says what they want and at what price. Here’s what it looks like in action:

• Buy Order (a.k.a. bid): “I want to buy 5 ETH at £2,800 each.”
• Sell Order (a.k.a. ask): “I want to sell 5 ETH at £3,000 each.”

These orders are listed on the orderbook, like a scoreboard showing who’s buying, who’s selling, and at what price. The exchange constantly checks both sides and matches buyers and sellers when their prices overlap. When there’s a match: say, someone is willing to sell SUI for £2 and a buyer is ready to pay that amount, the exchange automatically executes the trade. Ordebooks always have two parts:

• The Buy Side (bids): people who want to buy the token.
• The Sell Side (asks): people who want to sell the token.

Each side has multiple offers at different prices, sorted by how attractive they are:

• On the buy side, the highest price someone is willing to pay comes first.
• On the sell side, the lowest price someone is willing to accept comes first.

The best buy and best sell prices are known as the bid price and ask price, and the gap between them is called the spread.

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Limit Orders and Market Orders

There are two main types of orders you’ll use on orderbooks:

1. Limit Order: You choose the exact price you want to buy or sell at. Your order goes onto the orderbook and waits until someone matches it.
   • “I want to buy 100 SUI at £0.45.”
   • Great for saving money or setting price alerts.
2. Market Order: You buy or sell right now at the best available price. No waiting.
   • “Just give me 100 SUI at the current market rate.”
   • Good when speed matters more than price.

How do orderbooks compare to AMMs, and why are they a big deal in crypto today?

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Why Orderbooks?

AMMs made swapping easy. You don’t have to think: just click swap and it’s done. But sometimes, you want more control:

• You want to decide what price you’re willing to pay.
• You want to avoid getting wrecked by slippage.
• You want to see what the market is doing before jumping in.

That’s where orderbooks shine. Orderbooks give you visibility, flexibility, and precision. When you want more control, orderbooks let you:

• Set a limit price. Don’t want to pay more than £1.02 for that token? Cool, place an order and wait.
• See the market depth. You get a visual feel of who’s buying, who’s selling, and how much.
• Avoid slippage. Especially useful if you’re trading large amounts or volatile tokens.

Orderbooks are also better for larger trades, where AMMs might slip the price against you if the pool is small or volatile.

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Orderbook DEXs vs AMMs

DeFi initially adopted AMMs because they solved a critical problem: providing constant liquidity without requiring active market makers. When there’s great liquidity and active market makers, orderbooks outshine AMMs Let’s compare orderbook DEXs with traditional AMMs across different aspects: Use AMMs when you want simple swaps and fast experience and Orderbooks when you’re actively trading, need precision, or you have big orders.