Intro to Automated Market Makers (AMM)

Automated Market Makers

Automated Market Makers (AMM) power almost every Decentralized Exchange (DEX).

An Automated Market Maker (AMM) is a Decentralized Exchange (DEX) that offers users the ability to trade at any time for peer-to-peer transactions through its liquidity pools.

The exact mechanics vary from exchange to exchange, but generally offer low transaction fees and 100% uptime for as many users as possible. 

AMMs are able to offer trades through the use of Liquidity Pools. The deeper the liquidity, the more assets are available to make trades without extreme price changes and slippage. Liquidity Providers (LPs) are network participants who deposit their assets into these pools (i.e. virtual, asset-specific reservoirs) and by doing so, come to own a share of that particular pool and a claim to any revenues it produces. 

An AMM is the DeFi equivalent to centralized exchanges, which fill the trade orders through a central authority. Due to its automated nature, transactions on the AMM are considered “permissionless.” Any user can come to the DEX and make a trade or provide liquidity into a liquidity pool with no registration or KYC. Popular DEXs like Uniswap, Sushiswap, PancakeSwap, THORSwap, etc. seek to attract deep liquidity and trading volume to stay competitive.