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Order-book vs. AMM

Most traditional markets and centralized exchanges utilize central-limit order books (CLOBs) to track user orders and match overlapping trades. Traders familiar with traditional option brokers and crypto option exchanges will be familiar with order books, in which a depth of liquidity is maintained for each price level on the bid (buy-side) and ask (sell-side) of the market price by market makers, while takers can fill trades by accepting existing orders on the book.
In the Premia v3, market makers can deposit liquidity into range orders in an on-chain pool within the user’s defined price range (AKA concentrated liquidity). Makers can place range orders on the buy-side, sell-side, or both, to determine how their liquidity can be used within the specified price range. Each market’s automated price is directly determined by the distribution of liquidity on the exchange, and the past trades in the market. As traders (takers) buy options from sell-side orders, the market price will be adjusted upwards, and as traders sell options to buy-side orders, the market price will be adjusted downwards. This enables both traders and market makers to maintain short and / or long positions on the exchange as either makers or takers.
Each time a trade occurs, every overlapping range order will split fees and exposure for the trade pro-rata, determined by the amount of liquidity in each range order vs. the total amount of overlapping liquidity. The price each user pays or receives for an option is the quote price, determined by the AMM, plus a taker fee. The taker fee is split between makers and the protocol stakeholders (vePREMIA holders and protocol treasury).
Additionally, market makers can place limit orders on the v3 order book (which lives on Arbitrum Nova). Users do not need to interact with Arbitrum Nova directly; the Premia Blue UI will relay these orders and cover gas for your convenience. These orders do not earn maker fees; however, they will still be quoted to users on the Premia Interface via resting Limit Order.
This duality enables Premia v3 users to benefit from both earning fees in automated range orders and trade or market-make in traditional order book fashion. Exchange traders will also benefit from increased liquidity and better option pricing.