An automated decentralized exchange protocol that uses mathematical formulas to price assets, eliminating the need for intermediaries.
An automated market maker (AMM) is a type of decentralised exchange (DEX) protocol that prices assets using a mathematical formula. Assets are priced using a pricing algorithm rather than an order book as in a traditional exchange.

An Automated Market Maker (AMM) is a decentralized finance (DeFi) protocol that facilitates the automatic exchange of cryptocurrency assets through smart contracts, eliminating the need for a traditional order book and centralized intermediaries. AMMs provide liquidity by allowing users to trade assets directly from their wallets, interacting with liquidity pools rather than relying on buyers and sellers matched through a central authority.

The core mechanism of an AMM involves liquidity providers depositing pairs of assets into a smart contract, creating a pool. These pools set the exchange rate between the two assets, and users can trade against these pools. The price is determined algorithmically based on the ratio of assets in the pool. Popular AMM algorithms include Uniswap's Constant Product Market Maker Formula and Balancer's Weighted Portfolio.

AMMs have gained widespread popularity due to their accessibility, efficiency, and the opportunity for users to earn fees by providing liquidity to the pools. However, they are not without challenges, including impermanent loss for liquidity providers and susceptibility to certain market manipulations. Despite these considerations, AMMs play a pivotal role in the decentralized finance ecosystem, offering a decentralized and permissionless alternative to traditional exchanges.