Automated Market Maker (AMM)
The formula that replaced order books in DeFi — prices set by the ratio of assets in a pool, not by matching buyers to sellers.
An automated market maker prices trades with a mathematical formula against a liquidity pool instead of matching individual buy and sell orders. The classic design (Uniswap’s) keeps the product of the two pooled assets constant: buying one asset raises its price along a curve, so the pool always quotes a price and never runs out of a counterparty.
AMMs made permissionless, 24/7 markets possible for any token pair — the engine under every major DEX. Their trade-offs are baked into the math: large trades suffer slippage against the curve, and liquidity providers absorb impermanent loss when pooled prices diverge.