AMM (Automated Market Maker)

Glossary

DeFi

AMM (Automated Market Maker)

Pricing model used by DEXs where pool reserves set the price.

Definition

In depth

An AMM replaces the order book with a smart-contract pool of two tokens. The pool's reserves determine the price via a formula (e.g. x·y=k for Uniswap V2). Liquidity providers earn a share of swap fees, but face impermanent loss when prices diverge.

DEX (Decentralized Exchange)

An exchange that runs entirely on smart contracts, with no central operator.

Liquidity pool

A pool of two tokens that powers AMM swaps and pays fees to providers.

Impermanent loss

The opportunity cost LPs incur when pool token prices diverge.

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AMM (Automated Market Maker)