TECHNICAL CONCEPTS

AMM (Automated Market Maker)

Definition

An Automated Market Maker (AMM) is a type of decentralized exchange protocol that relies on mathematical formulas to price assets rather than order books. AMMs enable permissionless trading by using liquidity pools where users can swap tokens automatically.

Example

💡 Example

Uniswap is an AMM where users can swap ETH for USDC directly from liquidity pools without needing a counterparty.

Risks to Consider

⚠️ Risks
  • Slippage on large trades
  • Smart contract vulnerabilities
  • Liquidity provider risks

Common Questions

How does an AMM determine prices?

AMMs use algorithms like x*y=k (constant product) to automatically adjust prices based on supply and demand in liquidity pools.

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