Automated Market Maker (AMM)
Also known as: AMM, Decentralized Exchange Protocol, Liquidity Pool Market Maker
A decentralized exchange mechanism that uses mathematical formulas to price assets and facilitate trading without order books.
An Automated Market Maker (AMM) is a type of decentralized exchange (DEX) that allows users to trade cryptocurrencies directly from liquidity pools rather than through traditional order books. AMMs rely on mathematical formulas, such as the constant product formula (x*y=k), to determine asset prices automatically. Liquidity is provided by users who deposit tokens into pools and earn fees in return. AMMs have enabled permissionless, 24/7 trading in DeFi, with platforms like Uniswap, SushiSwap, and Curve popularizing the model. They eliminate the need for centralized intermediaries and provide greater accessibility, but can suffer from issues like impermanent loss and slippage.