DefineDeFiWeb3 Glossary

AMM (Automated Market Maker)

A trading robot that uses math to set prices automatically. Instead of matching buyers with sellers, it uses pools of money to make trades happen.

Example

Uniswap automatically raising the ETH price as more people buy it from the pool, based on a simple formula.

Related Terms

Tools & Protocols
AMM Constant Product CurveIllustrates the x*y=k pricing curve used by AMMs like UniswapToken A (ETH)Token B (USDC)CurrentPriceAfterBuyAfterSellx × y = kConstant ProductHow It WorksBuy ETH →Price risesSell ETH →Price fallsThe curve ensures there's always liquidity – prices adjustautomatically based on supply and demand.Large trades move further along the curve, resulting in more slippage.

⚙️How It Works

  1. 1

    Constant Product Formula

    AMMs use x × y = k, where x and y are token amounts and k stays constant

  2. 2

    Price Discovery

    The ratio between tokens determines the price - more of token A means A is cheaper

  3. 3

    Trade Execution

    When you buy token A, you add token B and remove A, changing the ratio

  4. 4

    Price Adjustment

    After each trade, prices automatically adjust based on new token ratios

📊Key Numbers

$1T+
Uniswap Volume
cumulative all-time trading volume
100K+
Daily Trades
on major AMM protocols
$500M+
LP Revenue
yearly fees earned by liquidity providers

⚖️AMM vs Order Book

Featureammorder Book
Price SettingAutomatic via formulaSet by traders' orders
LiquidityAlways availableDepends on active orders
Capital EfficiencyLower (spread across curve)Higher (concentrated)
ComplexitySimple to useMore trading options
SlippagePredictableVariable
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