AMM (Automated Market Maker)
trading · dex
A decentralized exchange mechanism that prices trades against liquidity pools using smart-contract formulas.
1.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.
2.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.
3.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.
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