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AMM
market type
Automated Market Maker ÔÇö AMM
An AMM is a decentralized trading system that allows users to swap tokens without a traditional order book. Instead of matching buyers and sellers directly, an AMM uses algorithmic liquidity pools ÔÇö where users deposit token pairs ÔÇö and prices are determined by mathematical formulas (like constant product: x * y = k). AMMs let anyone be a liquidity provider and earn fees, helping power the backbone of DeFi.
Use Case: AMMs allow tokens to be traded instantly and permissionlessly, enabling DEXs and yield farming strategies across multiple blockchain ecosystems.
Key Concepts:
- Liquidity Pool
- Token Pair
- Swap Fee
- Impermanent Loss
- Constant Product Formula
- Passive Income
How AMMs Work:
- Users deposit equal value of two tokens into a pool (e.g., $XRP/$RLUSD)
- Other users trade against that pool, and prices adjust based on supply shifts
- Liquidity providers (LPs) earn swap fees proportional to their share
- AMMs eliminate the need for centralized order matching and market makers
Where AMMs Are Found:
- Ethereum: Uniswap, SushiSwap
- BNB Chain: PancakeSwap
- Flare & Songbird: SparkDEX, BlazeSwap, Enosys, Cyclo.Finance
- Avalanche: Trader Joe, Pangolin
- XRPL: Built-in AMM ÔÇö protocol-level pools integrated with the DEX
AMMs vs Order Books:
- AMM: Instant swap via pool pricing ÔÇö low slippage, decentralized
- Order Book: Buyer/seller matching ÔÇö centralized or hybrid systems