AMM (Automated Market Maker)

trading

dex

A decentralized exchange mechanism that prices trades against liquidity pools using smart-contract formulas.

Acronym: Automated Market Maker
Also known as: Automated Market Maker

definition

An automated market maker (AMM) is a decentralized exchange design where users trade against liquidity pools instead of an order book. A smart contract holds reserves, calculates prices, and lets liquidity providers earn fees for supplying assets.

variants

AMMs use different formulas for different markets. Constant-product pools are common for volatile pairs, stable-swap pools reduce slippage between similar assets, and weighted pools support more than two assets or non-50/50 allocations.

caution

AMMs introduce risks including impermanent loss for liquidity providers, smart-contract bugs, oracle or routing issues, MEV, and high slippage when pool liquidity is shallow.

Conceptual links

Related terms

2 linked

Explore connected entries beyond the alphabetical index.

Decentralized Exchange

→

A decentralized exchange (DEX) lets users trade digital assets from their wallets through smart contracts or peer-to-peer settlement.

trading

exchange

Liquidity

→

How easily an asset can be bought or sold in size without causing a large price move.

finance

trading

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