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What is Automated Market Maker (AMM)?
An AMM is a DEX mechanism that uses liquidity pools and math formulas instead of order books to set prices. Uniswap pioneered this model.
Full Explanation
AMMs replaced traditional order books on decentralized exchanges. Instead of matching buyers with sellers, AMMs use liquidity pools — pairs of tokens deposited by liquidity providers. The price is determined by the ratio of tokens in the pool (usually x * y = k formula). When you swap on Uniswap, SushiSwap, or PancakeSwap, you're trading against a pool, not another person. LPs earn trading fees but face impermanent loss risk.
Related Terms
Last updated: 2026-03-21
