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Automated Market-Making (AMM)

Example

Platforms like Uniswap use AMMs to enable users to trade tokens directly with a liquidity pool, where prices are determined by a formula rather than an order book.

Key points

• Facilitates automated trading of digital assets without a middleman.

• Uses algorithms to set prices and provide liquidity.

• Essential for decentralized finance (DeFi) platforms.

Quick Answers to Curious Questions

They allow for trading without needing a traditional exchange, providing continuous liquidity and often lower fees.

AMMs use algorithms and smart contracts to set prices and execute trades automatically, unlike traditional exchanges that rely on human intervention and order books.

They enable efficient trading of digital assets, supporting the growth of decentralized platforms where there’s no need for centralized control.