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AMM — Automated Market Maker

Also known as: Automated Market Maker, Constant Product AMM

A smart contract that quotes prices algorithmically from a pool of two or more tokens. No order book needed.

The classic formula

x⋅y=kx \cdot y = k

Where xx and yy are the reserves of the two tokens and kk is invariant. Every swap moves price along this curve.

Modern variants

  • Constant product (Uniswap V2) — x⋅y=kx \cdot y = k. Simple, universal, inefficient for stables.
  • Stableswap (Curve) — near-linear curve around the 1:1 peg. Cheap for stable↔stable swaps.
  • Concentrated liquidity (Uniswap V3) — LPs choose a price range, massively boosting capital efficiency.
  • Weighted (Balancer) — custom token weights (e.g. 80/20).

Who provides liquidity

Anyone. LPs earn swap fees but take on impermanent loss and smart-contract risk. AMMs democratized market making — the trade-off is sophistication.