Definition
Automated Market Maker. A type of decentralized exchange protocol that uses mathematical formulas and liquidity pools to price assets and execute trades automatically, without requiring a traditional order book or counterparty.
Why It Matters
AMMs made decentralized trading possible. They allow anyone to trade or provide liquidity at any time without needing a matching buyer or seller.
Example
Uniswap uses an AMM where the price of a token is set by the ratio of two assets in a liquidity pool, not by buy/sell orders from traders.
Related Terms
DEX
Liquidity Pool
DeFi
Smart Contract