Automated Market Maker(AMM)
A smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.
In-Depth Explanation
AMMs like Uniswap use formulas (commonly x*y=k for constant product) to determine prices based on the ratio of assets in a pool. Users trade against the pool rather than other users. LPs deposit assets and earn fees but face impermanent loss risk. AMMs democratized market making but have capital efficiency tradeoffs.
Related Terms
Liquidity Pool
LPA smart contract holding paired assets that enables trading, lending, or other DeFi activities.
Impermanent Loss
ILThe loss in value compared to simply holding assets, caused by providing liquidity to an AMM as prices diverge.
Decentralized Exchange
DEXA cryptocurrency exchange that operates through smart contracts without a central authority or custody of user funds.
Slippage
The difference between the expected price of a trade and the actual executed price.
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LPA smart contract holding paired assets that enables trading, lending, or other DeFi activities.
Collateralized Debt Position
CDPA loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.
Lending Protocol
A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.
Decentralized Exchange
DEXA cryptocurrency exchange that operates through smart contracts without a central authority or custody of user funds.