An automated market maker (AMM) is a protocol that facilitates the automated trading of digital assets on decentralized exchanges by using liquidity pools and pricing algorithms to eliminate the need for traditional buy and sell order matching.

Understanding Automated Market Makers

An automated market maker (AMM) is a type of protocol used in decentralized finance (DeFi) that enables digital assets to be traded without the need for traditional market-making processes. These innovative systems have transformed how transactions are conducted on decentralized exchanges (DEXs).

How Automated Market Makers Differ from Traditional Exchanges

The Mechanics of AMM Exchanges

AMMs automate the pricing and order matching process. They incentivize users to become liquidity providers (LPs) by depositing their digital assets into liquidity pools. This contribution is rewarded by a share of the transaction fees, enhancing the liquidity and reducing price slippage.

Examples of AMM Platforms

Notable examples of AMM DEXs include: