Critical Elements Lithium Corp V.CRE

Explain how AMM's can block / thwart market manipulators

[HopeIBoughtLow]

When asking ChatGPT that question and asking it to explain it to someone in language a teenager would understand... here is what we get back.  I like it.  I hate short sellers.

Explain that like you talking to a teenager

ChatGPT

Alright, imagine you have a big jar where people can trade one type of candy for another, and this jar automatically adjusts the candy prices based on how much of each candy is left. This is how an Automated Market Maker (AMM) works. It’s like a robot in charge of fair trading, and this setup actually makes it pretty hard for anyone to mess with prices, even if they want to.

Here’s how an AMM can keep things fair and make it tough for people trying to mess around:

1. Always Has Candy:

• The AMM jar is always stocked with candy, which makes it harder for anyone to make candy seem super rare or super common, which is how some people mess with prices. This steady supply of candy keeps the price from changing too wildly.
• In other words, because the AMM always has stock to trade, no one can come in and buy up all the candy to jack up the price or sell a ton of it to crash the price.

2. Automatic Price Changes:

• In a regular market, if someone buys a ton of something, they can create hype, making everyone else think, “Oh, this is getting popular!” and drive the price up. But with an AMM, the price of candy automatically adjusts based on how much is left in the jar.
• So if someone tries to buy a ton of candy to make it seem scarce, the price just rises naturally, making it way more expensive for them. It’s like the AMM is saying, “Nice try, but I’m onto you!”

3. Everyone Can See the Trades:

• Every trade and every change in the candy jar is visible to anyone who wants to look. If someone’s doing something shady, like buying and selling a lot just to trick others, people can see it happening and call them out.
• This transparency means it’s harder to secretly pump up the price and then dump it to make a profit, because everything is out in the open.

4. Makes It Expensive to Mess With Prices:

• AMMs work better when lots of people add their own candy and cash into the jar, so the jar gets bigger and harder to shake up. This makes it way harder (and more expensive) for any single person to mess with the prices because the bigger the jar, the more candy they’d need to buy or sell to make a difference.

5. Limits on Borrowing Candy for “Shorting”:

• Usually, short sellers borrow stuff (like candy) to sell when the price is high and buy it back when it’s cheap. But with an AMM, there’s no easy way to borrow candy from the jar to sell and make a profit that way. So if the candy is mainly in the AMM jar, it’s a lot harder to short it and make money off a price drop.

Bottom Line

AMMs are like fair referees that keep everything balanced. They make sure no one can come in and easily push prices around because of automatic price adjustments, a steady supply, and open visibility of all trades. So, anyone trying to mess with prices has a way tougher time getting away with it!