DeFi 101Aug 30

What Is An Automated Market Maker (AMM)?

Automated Market Maker


· AMMs are DeFi system protocols

· AMMs use algorithmic calculations to determine asset value

· AMM allows tokens trading smart contracts

An automated market maker or AMM is a DeFi ecosystem protocol used for automatic asset value calculation using algorithms as opposed to the traditional order book. With automatic market maker, traders can trade tokens automatically through smart contracts liquidity pools.

Automated market makers support unstoppable, automatic, and decentralized token trading by pricing assets using algorithms. AMM exchanges differ from traditional exchanges in that they crowdsource liquidity and use smart contracts (bots) for trade execution.

By 2021, on-chain transactions worth billions of dollars occur every day on AMM exchanges. Some of the leading decentralized exchanges using the AMM model in delivering DeFi to users include Curve Finance Uniswap, Balancer, and Sushi.

Kibet Elikana
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