Introduction
Decentralized exchanges (DEXs), which enable peer-to-peer cryptocurrency trading without the need for middlemen, have grown significantly in popularity in the blockchain realm. The Automated Market Maker (AMM), which permits liquidity provision and trading through smart contracts, is one common technique utilized by DEXs. The creation of a DEX using AMM protocols like Uniswap, SushiSwap, and PancakeSwap will be discussed in this lesson.
Prerequisites
The following prerequisites are necessary in order to follow along with this tutorial:
- Knowledge of smart contracts and blockchain technology at a fundamental level.
- Programming experience with Solidity.
- Knowledge of Ethereum development tools like Hardhat, Truffle, or Remix.
- Web development expertise (HTML, CSS, and JavaScript) is required to build the frontend.
Requirements
For this tutorial you will need to familiarize yourself with the basics of blockchain concepts here .
To set up the development environment, create code, and use the required tools, you will need a computer running one of the supported operating systems (Windows, macOS, or Linux). You should also make sure you have administrative access to your computer and the right permissions to install programs like Node.js, Truffle, Hardhat, and Visual Studio Code, as well as to configure the development environment.
Getting Started
Grab a drink of water, then follow the instructional overview below to learn about the procedures required in creating a decentralized exchange (DEX) that uses automated market makers (AMM).
Tutorial Overview
- Overview of Automated Market Makers (AMM)
- Setting up the Development Environment
- Smart Contract Development
- Deploying Smart Contracts
- Building the Frontend
- Testing the DEX
- Deploying the DEX
- Conclusion
1.Overview of Automated Market Makers (AMMs)
Automated Market Makers (AMMs) are algorithms that enable trading on decentralized exchanges by supplying liquidity. They do away with centralized intermediaries and conventional order books by automating market-making through the use of smart contracts. The continual product market maker is the foundation for the most prevalent type of AMM.
2. Setting up the Development Environment
You must first set up your development environment before you can begin. Take the following actions:
- Install Node.js: Visit the Node.js website and install the latest stable version of Node.js.
- Install a code editor: Choose a code editor of your preference such as Visual Studio Code or Atom.
- Install Ethereum Development Tools: Install either Remix, Truffle, or Hardhat for smart contract development.
- Install a Package Manager: Use npm (Node Package Manager) or yarn as your package manager. npm comes with Node.js by default.
3. Smart Contract Development
Using the appropriate AMM protocols, we will create the smart contracts that drive the DEX in this stage. For implementation advice, we will consult the official documentation of each AMM.
Uniswap
- Visit the Uniswap official documentation: Read through the official Uniswap documentation to understand the key concepts, architecture, and smart contract details.
- Create a new Truffle project: Open a terminal or command prompt and create a new directory for your project. Navigate to the project directory and run the following command to create a new Truffle project:
truffle init
- Develop the Uniswap smart contracts: Create a new Solidity file in the
contractsdirectory, such asUniswapAMM.sol. Implement the Uniswap AMM logic using the guidance provided in the Uniswap documentation. Make sure to import any required libraries or contracts. - Compile the smart contracts: Run the following command to compile the smart contracts:
truffle compile
- Test the smart contracts: Write test cases for your smart contracts in the
testdirectory. Use the Truffle testing framework and write tests that cover the functionality of the Uniswap AMM.
SushiSwap
- Visit the SushiSwap official documentation: Refer to the official SushiSwap documentation to understand the AMM concepts, contract architecture, and development guidelines.
- Update Truffle project configuration: Open the
truffle-config.jsfile in the project root directory and update the network configuration to match the desired network for deployment (e.g.,development,ropsten, etc.). - Develop the SushiSwap smart contracts: Create a new Solidity file, such as
SushiSwapAMM.sol, in thecontractsdirectory. Implement the SushiSwap AMM logic based on the documentation. Import any required contracts or libraries. - Compile the smart contracts: Run the following command to compile the smart contracts:
truffle compile
- Write tests for the smart contracts: Create test cases in the
testdirectory using the Truffle testing framework. Ensure that your tests cover the SushiSwap AMM’s key functionality.
PancakeSwap
-
Visit the PancakeSwap official documentation: Explore the PancakeSwap documentation to understand the AMM concepts, contract architecture, and development guidelines specific to PancakeSwap.
-
Update Truffle project configuration: Open the
truffle-config.jsfile in the project root directory and update the network configuration to match the desired network for deployment (e.g.,development,ropsten, etc.). -
Develop the PancakeSwap smart contracts: Create a new Solidity file, such as
PancakeSwapAMM.sol, in thecontractsdirectory. Implement the PancakeSwap AMM logic based on the documentation. Import any required contracts or libraries. -
Compile the smart contracts: Run the following command to compile the smart contracts:
truffle compile
- Write tests for the smart contracts: Create test cases in the
testdirectory using the Truffle testing framework. Ensure that your tests cover the PancakeSwap AMM’s key functionality.
4. Deploying Smart Contracts
After creating the smart contracts, you must implement them on the blockchain. For this article, we’ll learn how to use the Hardhat and truffle development environments.
Hardhat development
- Configure Hardhat: Create a
hardhat.config.jsfile in the project root directory. Configure the network settings, accounts, and compiler options according to your requirements. - Create a deployment script: Create a new directory called
scriptsand create a file nameddeploy.jsinside it. Write a script that deploys the smart contracts to the desired network. Use the Hardhat API and ethers.js library for deploying the contracts. Here’s an example of how the deployment script may look:
const { ethers, upgrades } = require("hardhat");
async function main() {
const [deployer] = await ethers.getSigners();
console.log("Deploying contracts with the account:", deployer.address);
// Deploy UniswapAMM contract
const uniswapAMMContract = await ethers.getContractFactory("UniswapAMM");
const uniswapAMMUProxy = await upgrades.deployProxy(uniswapAMMContract);
await uniswapAMMUProxy.deployed();
console.log("UniswapAMM contract deployed at address:", uniswapAMMUProxy.address);
}
main()
.then(() => process.exit(0))
.catch((error) => {
console.error(error);
process.exit(1);
});
- Deploy the contracts: Run the deployment script using the command
npx hardhat run scripts/deploy.js --network <network-name>. Replace<network-name>with the desired network, such as “rinkeby” for the Rinkeby test network or “mainnet” for the Ethereum mainnet.
Truffle Development
- Update migration files: In the
migrationsdirectory, create migration files (1_initial_migration.js,2_deploy_uniswap.js, etc.) that define the deployment order and configuration for each AMM’s smart contracts. Update the migration files with the necessary deployment logic specific to each AMM. - Deploy the smart contracts: Run the following command to deploy the smart contracts:
truffle migrate --network <network-name>
Replace <network-name> with the desired network, such as development, ropsten, or mainnet. This will deploy the smart contracts to the specified network.
5. Building the Frontend
Now that the smart contracts are deployed, we will build a frontend interface to interact with the DEX. We will use web development technologies like HTML, CSS, and JavaScript.
1.Create a new directory : Create a new directory called frontend in your project root directory.
2.Create an HTML file: Inside the frontend directory, create an HTML file named index.html and define the basic structure of the frontend interface.
3.Style the frontend: Create a CSS file named style.css and add the necessary styles to make the interface visually appealing.
4.Add JavaScript functionality: Create a JavaScript file named app.js and write the necessary code to interact with the deployed smart contracts. Use libraries like Web3.js or ethers.js to connect to the blockchain and interact with the contracts.
5.implement frontend functionality: Add features like token swapping, liquidity provision, and transaction handling to the JavaScript code. You can use the web3.js or ethers.js libraries to call the smart contract functions and handle the user interactions.
6. Testing the DEX
It’s essential to thoroughly test the DEX to ensure its functionality and security. Here are some testing steps you can follow:
1.Write test cases: Create a directory named tests and write test cases using a testing framework like Mocha or Hardhat’s built-in testing framework.
2.Test contract functionality: Write tests to verify the functionality of the smart contracts, including token swaps, liquidity provision, and price calculations.
3.Test edge cases: Include test cases that cover edge cases and potential vulnerabilities in the smart contracts.
4.Run the tests: Use the testing framework’s command-line interface to run the tests against the deployed smart contracts. For example, with Hardhat, you can run npx hardhat test to execute the tests.
7. Deploying the DEX
Deploying the DEX to the target network is possible when you have tried it and are pleased with its functionality. the following actions:
1.Make preparations for deployment: Verify that your Hardhat configuration file contains the required deployment configurations.
2.Create the frontend: To create static files that are optimized, use a bundler like webpack or parcel to create the frontend interface.
3.Deploy the frontend: You may either use IPFS (InterPlanetary File System) for decentralized hosting or upload the frontend files you’ve created to a web server.
4.Update the frontend with contract addresses: Update the contract addresses in the frontend’s deployed files with the locations of the smart contracts that have been installed on the target network.
5.Release the deployed frontend: Upload the modified frontend files to an IPFS or web server.
6.Test the deployed DEX: Use a web browser to access the frontend interface and check the DEX’s functionality. Verify that each feature, including token swapping and liquidity provision, performs as intended.
Here’s an example of a smart contract that represents a simplified version of a decentralized exchange (DEX) using an automated market maker (AMM) logic:
pragma solidity ^0.8.0;
import "./IERC20.sol";
contract Dex {
IERC20 public token;
event TokenSwap(address indexed buyer, uint256 amountIn, uint256 amountOut);
event LiquidityAdded(address indexed provider, uint256 amount);
constructor(address _tokenAddress) {
token = IERC20(_tokenAddress);
}
function swapTokens(uint256 amountIn, uint256 amountOut) external {
// Perform token swap logic here
// ...
// Emit an event
emit TokenSwap(msg.sender, amountIn, amountOut);
}
function addLiquidity(uint256 amount) external {
// Perform liquidity provision logic here
// ...
// Emit an event
emit LiquidityAdded(msg.sender, amount);
}
}
In this example, we assume the existence of an ERC20 token contract represented by the IERC20 interface. The DEX contract accepts the address of the token contract as a constructor parameter and initializes it in the token variable.
The swapTokens function represents the token swapping functionality of the DEX. It takes in the input amount (amountIn) and the desired output amount (amountOut). Inside this function, you would implement the logic specific to the AMM protocol you’re using, such as Uniswap, SushiSwap, or PancakeSwap, to perform the token swap.
The addLiquidity function represents the liquidity provision functionality of the DEX. It takes in the amount of tokens (amount) that the liquidity provider wants to add. Similar to the swapTokens function, you would implement the specific AMM logic to handle the liquidity provision.
The contract emits events (TokenSwap and LiquidityAdded) to notify external systems about token swaps and liquidity additions, allowing them to react accordingly.
Note that this is a simplified example, and the actual implementation will vary based on the chosen AMM protocol and specific requirements.
8. Conclusion
You did it! You’ve been successful in creating a decentralized exchange (DEX) employing automated market makers (AMM) like Uniswap, SushiSwap, and PancakeSwap. Throughout this course, you learnt how to set up the development environment, create smart contracts, use Hardhat to publish them, create a front-end user interface, test the DEX, and deploy it to a network. Exciting opportunities for decentralized trade are created by creating a DEX using AMM protocols. Feel free to investigate more and improve the functionality of your DEX based on your own needs.
Prior to deploying your DEX to a production environment, keep in mind to take security best practices into account, do exhaustive testing, and guarantee proper auditing. Keep abreast of any new advancements in the AMM protocols and the Celo blockchain ecosystem to be able to incorporate them into your DEX.
Happy trading and coding!
Next Steps
I trust this tutorial was very informative for you. Celo provides a great platform for building DEXs, and we encourage you to explore its capabilities and build your own DEXs on Celo. You can do
this is through our tutorials
About the Author
Shukurah Ganiyu is a UIUX designer and a content writer passionate about blockchain, DeFi, NFTs, and cryptocurrencies for the emerging Web3 sector.
References
what-is-uniswap-and-how-does-it-work
building-a-decentralized-exchange-on-celo-with-golang
pancakeswap-uniswap-sushiswap-and-more-what-to-consider-when-parking-crypto-in-a-defi-exchange/