Automated Market Maker (AMM)
A pricing algorithm that lets a token pool quote and settle trades automatically, replacing the traditional order book of buyers and sellers.
An automated market maker, or AMM, sets prices with math instead of matching orders. The best-known formula, x times y equals k, keeps the product of two token reserves constant. Buy one token from the pool and its price rises along a curve as supply drops.
Uniswap proved the model in 2018, and it now underpins most on-chain trading. AMMs run around the clock and need no counterparty waiting on the other side. The cost shows up as slippage on large trades and impermanent loss for the providers funding the pool.
Related terms
A pot of tokens locked in a smart contract that traders swap against, with prices set by a formula.
Liquidity ProviderSomeone who deposits token pairs into a pool, supplying the funds traders swap against in return for a share of fees.
Order BookA live, ranked list of all outstanding buy and sell orders for an asset on an exchange.
SlippageThe difference between the price you expected on a trade and the price it actually executed at.