AMM
Automated Market Maker — a smart contract that prices tokens algorithmically using a liquidity pool instead of an order book.
An Automated Market Maker (AMM) replaces the traditional exchange order book with a mathematical formula and a pool of tokens. The most common formula is Uniswap's constant product: x * y = k, where x and y are the pool's token reserves and k is a constant. When a trader buys token X, they deposit token Y, shifting the ratio and changing the price.
AMMs enable permissionless market-making: anyone can deposit tokens into a liquidity pool and earn a share of trading fees proportional to their contribution. This democratised market-making but introduced impermanent loss — a risk that liquidity providers' positions can be worth less than simply holding the tokens.
Stableswap AMMs (Curve Finance) use different formulas optimised for assets that trade near parity (like USDC/USDT), achieving much lower slippage than constant-product formulas for stablecoin swaps.