Automated Market Maker (AMM) is a type of decentralized exchange (DEX) protocol that allows users to buy and sell digital assets such as crypto tokens without the need for third-party intermediaries such as brokers or intermediaries. AMMs use mathematical formulas and liquidity pools to automatically determine prices and facilitate real-time trading between assets.
In AMM, there is no order book and transactions are carried out directly through the liquidity pool. Users can exchange one crypto asset for another directly, and the price is determined by the ratio of assets in the pool at the time the transaction occurs. The greater the availability of liquidity in the pool, the lower the potential for slippage when trading.
AMMs have become very popular among participants in the DeFi (Decentralized Finance) ecosystem. DeFi platforms such as Uniswap and Pancakeswap use an AMM model where users can provide liquidity into a pool to earn returns.
Examples of AMM (Automated Market Maker) in use in a sentence:
“Uniswap uses an Automated Market Maker mechanism and has become one of the most popular DEXs (Decentralized Exchange) in the crypto world.”
“Crypto traders use Pancakeswap to exchange CAKE tokens for BUSD via an Automated Market Maker-based liquidity pool.”
“The greater the liquidity supplied in the Automated Market Maker pool, the more efficient the trading process between crypto assets will be.”
Source:
https://coinmarketcap.com/academy/glossary/automated-market-maker-amm
