GlossaryIntermediate
Automated Market Maker
A system that prices and executes trades using a formula and a pool of funds, not an order book.
An automated market maker, or AMM, is a mechanism used by many decentralized exchanges that prices trades using a mathematical formula based on the ratio of assets in a liquidity pool, rather than matching individual buy and sell orders.
Traders swap directly against the pool, and the pool's prices shift automatically as its balance of assets changes with each trade. See Kaavon's "Liquidity Pool" glossary definition for the shared funds this formula actually prices trades against.
Examples
- An AMM-based DEX lets a user swap one token for another directly against a liquidity pool.
- Large trades on an AMM can cause more slippage than the same trade would on a deep order book.