Automated Market Maker (AMM)

The key to the entire DeFi boom sits with the incredible innovation that is Automated Market Makers (AMMs). They are what allow digital assets to be traded without permission, and automatically, by using liquidity pools instead of a traditional market of buyers and sellers.

On a traditional exchange platform, buyers and sellers offer up different prices for an asset. When other users find a listed price to be acceptable, they execute a trade and that price becomes the asset’s market price. Stocks, gold, real estate, and most other assets rely on this traditional market structure for trading. However, AMMs have a different approach to trading assets.

AMMs are a financial tool unique to blockchain and decentralized finance (DeFi). This new technology is decentralized, always available for trading, and does not rely on the traditional interaction between buyers and sellers. This new method of exchanging assets embodies the ideals of crypto and blockchain technology in general: no one entity controls the system, and anyone can build new solutions and participate.