(
Automated
Market
Maker) A protocol for trading one crypto for another on a decentralized exchange (DeX). Unlike the traditional order book model used in stock exchanges, whereby bidders are matched up with sellers, the automated market maker (AMM) is an algorithm in a software-based smart contract that determines the price of the trade. See
smart contract.
Liquidity Pools and Protocols
AMMs use liquidity pools, which are deposits of crypto tokens that provide the liquidity for making the trade (see
crypto liquidity pool and
crypto liquidity protocol). See
decentralized exchange and
yield farming.