Products FM Marketplace
Multi-dealer marketplace
FM Liquidity Match
Saas for electronic trading
FM White Label
B2B White Label Crypto Trading Platform
FM Pulse
Real-time market data analytics
FM Space
Counterparty selection
Clients Banks & brokers
Neobanks, crypto-native and FX brokers
Payment providers
PSPs, payment gateways, on/off ramp
OTC desks
Crypto trading desks, retail platforms
Buy-side
Passive funds, hedge funds, asset managers
Liquidity providers
Market makers, proprietary shops
Prime brokers
Agency and risk-principle brokers
Stablecoin issuers
Next gen of fintech
Company About Careers Blog Media kit Referral Legal Imprint Operating rules Privacy Policy Risk Disclosure Support Contact us

For Customers Log in

Contact Us

Price discovery mechanisms Meaning

Price discovery mechanisms are the specific tools and structures used to determine the value of an asset. While the broad concept is price discovery, the mechanism refers to the how. The most common mechanism in finance is the Limit Order Book (LOB), used by major stock exchanges and centralized crypto exchanges.

Here, buyers and sellers list their preferred prices, and the exchange matches them when their prices overlap.In decentralized finance (DeFi), the primary mechanism is the Automated Market Maker (AMM). Instead of an order book, an AMM uses a mathematical formula (like x×y=k) to determine the price based on the ratio of two assets in a liquidity pool. If a user buys more of Asset X, its price goes up relative to Asset Y to keep the formula in balance.

This allows for constant, 24/7 price discovery even without a counterparty being present at the exact moment of the trade.Auctions are another vital price discovery mechanism, especially for rare or unique assets like NFTs. Dutch Auctions start with a high price that gradually lowers until someone buys, while English Auctions start low and go to the highest bidder.

These mechanisms are particularly effective for Initial DEX Offerings (IDOs) because they help prevent bots from front-running the launch and allow the market to naturally find a fair starting price for a new token.Finally, Oracles are a critical secondary mechanism for price discovery on the blockchain. Since blockchains cannot see the outside world, they rely on oracles (like Chainlink) to pull price data from multiple external sources and feed it into smart contracts.

This ensures that a DeFi lending platform, for instance, knows the correct price of collateral to prevent bad debt. The combination of these various mechanisms creates a robust global system where the value of any asset can be determined in real-time.

← Back to Glossary

Explore our services

Providing liquidity in the cryptocurrency market?
Authorize on our platform and do it smarter with FM Pulse.

FM Marketplace

A reliable and high-performance crypto liquidity marketplace for institutions and businesses.

Learn more

FM White Label

Launch your fully branded B2B crypto trading platform in under one week.

Learn more

FM Liquidity Match

Crypto OTC-as-a-Service infrastructure for enhanced monetization and trade control.

Learn more

Scale your business, leave the hard work of your trading needs to us

Reduce your integration costs and operational risk across multiple access points with our platform

Get started

Important Disclaimer:

Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

Finery Markets’ software is non-custodial and is provided exclusively to licensed institutional entities that act as independent operators of their own environments. All counterparties are solely responsible for establishing and maintaining their own bilateral trading and settlement relationships. Finery Markets is not a party to any such arrangements and assumes no responsibility for the conduct, verification, or compliance obligations of any users of the software.

Nothing on this website shall be construed as a financial promotion, investment advice, or an offer to engage in regulated activities. Access to and use of the software is strictly limited to clients who have entered into a software licensing agreement with Finery Markets. Persons located in jurisdictions where such access is restricted should not rely on this website or any of its contents.

Additional notice to UK visitors: This website and associated communications are not intended to constitute a financial promotion under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) and related guidance. Access to services provided by Finery Markets is limited to regulated entities, professional clients and eligible counterparties as set out by the Financial Conduct Authority. UK users are not permitted to use this website for the services of Finery Markets if they don't fall within these categories.