Plain English
An AMM (Automated Market Maker) is the algorithm that prices and executes trades inside a DEX. Instead of matching buyers and sellers from an order book, an AMM uses a mathematical formula to set prices based on the ratio of tokens in a liquidity pool.
How it actually works
The classic AMM formula is x × y = k. Two token reserves (x and y) multiply to a constant (k). Any trade changes the ratio and therefore the price. Curve uses a different formula optimized for assets that should trade near 1:1 (like USDC/USDT). Uniswap V3 introduced concentrated liquidity, letting providers choose price ranges. The result: trades execute instantly without a counterparty, just against the pool.
What it means for you
AMMs are the structural innovation that made DEXes possible. The model has trade-offs — impermanent loss for liquidity providers, slippage for large traders — but it removes the need for a centralized order-matching engine.
We walk through the practical AMM math: how to read pool depth, predict slippage, and choose the right venue for a given trade size.
Educational content only. Not investment, tax, or legal advice.