AMM (Automated Market Maker)

A trading protocol that uses a mathematical formula instead of an order book to price assets.

An automated market maker prices assets algorithmically based on the ratio of tokens in a liquidity pool, rather than matching buyers and sellers on an order book. Uniswap's constant-product formula (x*y=k) is the canonical AMM design — when you swap one token for another, the math automatically adjusts the price based on the new reserves.

AMMs solved the chicken-and-egg problem of decentralized trading: anyone can list any token by creating a pool, no market maker required. The trade-off is that AMMs are less capital-efficient than order books, and large trades suffer high slippage.