Automated Market Maker (AMM)

An Automated Market Maker (AMM) is a protocol used in decentralized finance (DeFi) that enables the automated trading of digital assets without the need for a traditional order book. AMMs utilize liquidity pools, where users, known as liquidity providers, deposit their assets into smart contracts. These pools facilitate trades based on predefined mathematical formulas, ensuring continuous liquidity and allowing users to swap tokens directly from the pool.

For web3 developers, integrating AMMs into dApps can enhance liquidity and provide users with seamless trading experiences. Understanding the mechanics of AMMs is crucial for creating efficient and user-friendly DeFi platforms.