Automated Market Maker (AMM)

AMMs (automated market makers) use liquidity pools in place of a traditional market of buyers and sellers to enable the automatic and unrestricted trading of digital assets. On a conventional exchange platform, sellers and buyers present various prices for the same asset. When other users execute a trade at a listed price because they think it is reasonable, that price becomes the asset's market price. Most other assets, including stocks, gold, real estate, and others, rely on this established market structure for trade. AMMs, however, take a different tack when it comes to trading assets.

The financial tool known as AMMs is exclusive to Ethereum and decentralized finance (DeFi). This innovative system does not rely on the conventional contact between buyers and sellers, is decentralized, and is constantly open for trading. The principles of Ethereum, cryptocurrencies, and blockchain technology in general are embodied by this new way of transferring assets: nobody owns the system, and anybody may contribute and create new solutions.