What is an Automated Market Maker (AMM)?

An automated market maker (AMM) is a computer program that operates a marketplace or exchange and automatically sets prices and matches buyers and sellers without a traditional human broker. AMMs are commonly used in decentralized finance (DeFi) applications on blockchain networks, such as Ethereum. In an AMM-based marketplace, the prices of assets are determined algorithmically based on supply and demand rather than being set by a central authority or individual market maker. This allows for more efficient and transparent price…