Automated Market Maker
System enabling decentralized trading without an order book.
Beginner-friendly explanation
An AMM is a bot that lets you swap cryptocurrencies without needing a direct buyer or seller. It uses an automatic formula to set prices. Example: On Uniswap, you can instantly swap ETH for DAI thanks to the AMM.
Intermediate-level insight
AMMs use liquidity pools and adjust prices according to a mathematical formula (e.g., x*y=k on Uniswap). The more a trade unbalances the pool, the more the price shifts. Example: If a lot of ETH is withdrawn from an ETH/USDC pool, the price of ETH rises relative to USDC.
Advanced perspective
Different AMM models exist: Constant Product (Uniswap), Constant Sum (Balancer), Hybrid (Curve for stablecoins). Each formula seeks to balance liquidity, volatility, and impermanent loss. Advanced strategies include arbitrage and dynamic pool parameter adjustment. Example: Balancer enables multi-asset pools with custom weightings, optimizing diversification.
NFT DEFI Web3
AMM, automated market maker, decentralized exchange, liquidity pool, x*y=k formula, arbitrage, slippage