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Order Books vs AMMs
Two ways to set a price, suited to different markets
An order book matches buyers and sellers directly. Each side posts a price and a size, and trades happen where they meet. It works well when many participants are trading, which keeps the book full and spreads tight. An automated market maker, or AMM, replaces the matching engine with a pricing formula and a pool of tokens that anyone can trade against. AMMs can keep a market open when trading is thin, but someone has to fund the pool, and a pool holding an asset that rarely trades can leave liquidity providers exposed to out-of-date prices. Many tokenized assets trade only a few times a day.
Both models work best with steady trading. Many RWAs trade infrequently, which limits how well either one works.