Automated Market Maker (AMM)
In DeFi (Decentralized Finance)
Plain English
A system that automatically sets prices based on a mathematical formula, using pools of tokens instead of buyers/sellers matching orders. You trade against a pool, not another person. The most common formula keeps the product of two token amounts constant (x × y = k).
Technical
Decentralized exchange protocol using algorithmic price determination rather than order books. Constant product formula (x*y=k) maintains invariant across trades. Liquidity providers deposit token pairs, earning proportional trading fees. Price determined by pool ratio; trades shift ratio, moving price along bonding curve. Advantages: permissionless liquidity, no order matching needed. Solana AMMs: Orca, Raydium, Meteora.