Automated Market Maker

An Automated Market Maker (AMM) is a system used in decentralized finance (DeFi) that allows users to exchange cryptocurrencies directly without a middleman. It uses algorithms and pools of tokens maintained by liquidity providers to determine prices and facilitate trades automatically. When someone trades, the AMM adjusts the relative quantities of tokens in the pool based on mathematical formulas, ensuring continuous liquidity. This setup removes the need for traditional order books and centralized exchanges, enabling more open and permissionless trading of digital assets.