Automated Market Makers (AMM)
Automated market makers (AMMs) are algorithmic systems that use smart contracts or hooks to facilitate the buying and selling of cryptocurrency assets in a decentralised manner. They are designed to provide liquidity to a market by automatically setting prices and executing trades based on predetermined rules rather than relying on a traditional centralised exchange or individual market makers.
AMMs use a mathematical formula to calculate the price of an asset based on the supply and demand of that asset on the market. When a user wants to buy or sell an asset, they interact with the AMM’s smart contract, which executes the trade based on the current market price calculated by the AMM’s formula.
AMMs are often used in decentralised finance (DeFi) platforms and can be an attractive option for traders because they offer fast and efficient execution of trades, as well as anonymity and security due to their decentralised nature. However, AMMs may not always offer the same level of liquidity as a traditional centralised exchange, and the prices they offer may be less favourable to traders in certain market conditions.
“I was interested in trading some of my cryptocurrency, so I decided to use an automated market maker (AMM) to buy and sell assets quickly and efficiently. The AMM used a smart contract to execute trades based on the current market supply and demand, and I was able to complete my transactions without having to go through a centralised exchange.”