Automated Market Makers (AMMs) have transformed how assets are traded in decentralized finance (DeFi), replacing traditional order books with liquidity pools and smart contracts. This innovation has made decentralized exchanges (DEXs) accessible and efficient, especially for smaller traders and new projects.
What Are Automated Market Makers?
AMMs are smart contracts that automatically facilitate trades by using liquidity pools instead of matching individual buy and sell orders.
How Do AMMs Work?
Liquidity providers deposit asset pairs (such as ETH/USDT) into pools, enabling traders to swap between these assets directly. Prices are determined algorithmically based on pool balances.
Advantages and Risks of AMMs
AMMs offer 24/7 trading, reduced reliance on intermediaries, and equal access to all users, fostering a more open financial ecosystem. However, participants must be aware of risks like impermanent loss, smart contract bugs, and low liquidity in certain pools.
As DeFi continues to evolve, AMMs remain a cornerstone technology, driving liquidity, innovation, and user adoption across decentralized platforms.
