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docs/concepts/tokens/decentralized-exchange/automated-market-makers.md
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@@ -88,15 +88,20 @@ LP tokens use a special type of currency code in the 160-bit hexadecimal ["non-s
Trading fees are a source of passive income for liquidity providers. They offset the currency risk of letting others trade against the pool's assets. Trading fees are paid to the AMM, not directly to liquidity providers. Liquidity providers benefit because they can redeem their LP tokens for a percentage of the AMM pool.
Liquidity providers can vote to set the fee from 0% to 1%, in increments of 0.001%. Liquidity providers have an incentive to set trading fees at an appropriate rate: if fees are too high, trades will use order books to get a better rate instead; if fees are too low, liquidity providers don't get any benefit for contributing to the pool. <!-- STYLE_OVERRIDE: will --> Each AMM gives its liquidity providers the power to vote on its fees, in proportion to the number of LP tokens they hold.
Liquidity providers can vote to set the fee from 0% to 1%, in increments of 0.001%. Liquidity providers have an incentive to set trading fees at an appropriate rate: if fees are too high, trades will use order books to get a better rate instead; if fees are too low, liquidity providers don't get any benefit for contributing to the pool. <!-- STYLE_OVERRIDE: will -->
To vote, a liquidity provider sends an [AMMVote][] transaction. Whenever anyone places a new vote, the AMM recalculates its fee to be an average of the latest votes weighted by how many LP tokens those voters hold. Up to 8 liquidity providers' votes can be counted this way; if more liquidity providers try to vote, then only the top 8 votes (by most LP tokens held) are counted. Even though liquidity providers' share of LP tokens can shift rapidly for many reasons (such as trading those tokens using [Offers](offers.md)), the trading fees are only recalculated whenever someone places a new vote (even if that vote is not one of the top 8).
Each AMM gives its liquidity providers the power to vote on its fees, in proportion to the number of LP tokens they hold.
To vote, a liquidity provider sends an [AMMVote][] transaction. Whenever anyone places a new vote, the AMM recalculates its fee to be an average of the latest votes, weighted by how many LP tokens those voters hold. Up to 8 liquidity providers' votes can be counted this way; if more liquidity providers try to vote, then only the top 8 votes (by most LP tokens held) are counted. Even though liquidity providers' share of LP tokens can shift rapidly for many reasons (such as trading those tokens using [Offers](offers.md)), the trading fees are only recalculated whenever someone places a new vote (even if that vote is not one of the top 8).
### Auction Slot
Unlike any previous Automated Market Makers, the XRP Ledger's AMM design has an _auction slot_ that a liquidity provider can bid on to get a discount on the trading fee for a 24-hour period. The bid must be paid in LP tokens, which are returned to the AMM. No more than one account can hold the auction slot at a time, but the bidder can name up to 4 more accounts to also receive the discount. There is no minimum bid, but if the slot is currently occupied then you must outbid the current slot holder to displace them. If someone displaces you, you get part of your bid back depending on how much time remains. As long as you hold an active auction slot, you pay a discounted trading fee equal to 1/10 (one tenth) of the normal trading fee when making trades against that AMM.
The XRP Ledger's AMM design includes an _auction slot_. A liquidity provider can bid LP Tokens to claim the auction slot to receive a discount on the trading fee for a 24-hour period. The LP tokens that were bid are returned to the AMM.
With any AMM, when the price of its assets shifts significantly in external markets, traders can use arbitrage to profit off the AMM, which results in a loss for liquidity providers. The auction mechanism is intended to return more of that value to liquidity providers and more quickly bring the AMM's prices back into balance with external markets.
No more than one account can hold the auction slot at a time, but the successful bidder can name up to 4 additonal accounts to receive the discount.
There is no minimum bid. If the slot is currently occupied, you must outbid the current slot holder to displace them. If someone displaces you, you get a percentage of your bid back based on how much time remains. As long as you hold an active auction slot, you pay a discounted trading fee equal to 1/10 (one tenth) of the normal trading fee when making trades against that AMM.
With any AMM, when the price of its assets shifts significantly in external markets, traders can use arbitrage to profit off the AMM. That can result in a loss for liquidity providers. The auction mechanism is intended to return more of that value to liquidity providers, and more quickly bring the AMM's prices back into balance with external markets.
## Representation in the Ledger