An Automated Market Maker (AMM) is a type of decentralized exchange protocol that uses mathematical formulas to price assets instead of traditional order books. AMMs enable permissionless trading through liquidity pools.
The most common AMM formula is x * y = k (constant product formula), used by Uniswap. Other formulas include StableSwap for stablecoins and concentrated liquidity models.
Key components of AMMs include liquidity pools (token pairs locked in smart contracts), liquidity providers (users who deposit tokens and earn fees), and swap fees (typically 0.3% per trade).
Popular AMM protocols include Uniswap, SushiSwap, Curve Finance, and Balancer. Each offers different features optimized for various trading scenarios.