Automated Market Maker (AMM)

An Automated Market Maker (AMM) is a type of decentralized exchange mechanism that allows users to trade cryptocurrencies without the need for traditional intermediaries like brokers. AMMs use algorithms to create liquidity pools that match buyers and sellers for their desired trades.

In an AMM system, users can provide funds to a liquidity pool by depositing equal values of two different cryptocurrencies. The ratio of these assets in the pool determines the price at which trades can be made. When a trade is initiated, the AMM automatically calculates the exchange rate based on the current ratio of assets in the pool.

AMMs are designed to be efficient, cost-effective, and accessible to anyone with an internet connection and digital wallet. They provide a way for users to trade cryptocurrencies in a trustless manner without relying on a centralized authority. AMMs have gained popularity in the cryptocurrency space for offering a decentralized and user-friendly alternative to traditional exchanges.