Automated market maker

How it is used

Usually shortened to AMM. The best-known formula is the constant product rule x × y = k: as traders buy one token from the pool, its price rises. Because prices depend on pool size, large trades in small pools cause high slippage. Arbitrage traders keep AMM prices close to prices on other exchanges.

Example sentences

1. An automated market maker does not need an order book; the pool itself is always on the other side of your trade.

2. Our automated market maker uses a different curve for stablecoin pairs to keep slippage low.

Common collocations

• automated market maker (AMM)
• AMM pool
• AMM formula
• constant product AMM

Related terms

• liquidity poolA smart contract that holds two or more tokens which traders can swap against. Users who deposit tokens into it earn a share of the trading fees.
• decentralized exchangeAn exchange that runs on smart contracts, letting users trade directly from their own wallets without handing their funds to a company. Often shortened to DEX.
• slippageThe difference between the price you expect when you place a trade and the price at which it is actually completed, usually caused by low liquidity or fast price moves.
• order bookA live list of all open buy and sell orders for a trading pair, sorted by price. It shows what buyers will pay, what sellers want and how much is available at each price level.
• liquidityHow easily an asset can be bought or sold quickly without moving its price much. In DeFi, it also means the funds that users deposit into pools so that others can trade.

More terms: DeFi & NFTs

• DeFi
• NFT
• collateral
• yield farming