An Automated Market Maker (AMM) is a trustless way to trade. Simple. You can do this on platforms like Uniswap, Curve, Balancer and a host of others.
How AMMs work can be compared to a robot that’s always willing to quote you a price between two assets. You can also provide liquidity, thereby becoming a market maker on an exchange and earn fees in return.
AMMs are decentralized exchanges that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm.
Here is how AMM works
You know that on a centralised exchange like Binance, an order book is used. A sell and buy order has to match for a trade to take place. This is not the case with AMMs.
Trades do not happen between users here. Rather, trades happens between users and smart contracts.
Please keep in mind that the liquidity in these contracts will have to be provided by users. You can find how more about liquidity pools here.
