How Do Automated Market Makers (AMMs) Utilize Smart Contracts in DeFi?

AMMs are defined by smart contracts that manage a liquidity pool and execute a pricing algorithm, typically $x y=k$. These contracts allow users to trade assets directly against the pool without a traditional order book or matching counterparties.

The smart contract automatically adjusts the asset price based on the trade size and the pool's remaining reserves. This mechanism enables continuous, decentralized trading and liquidity provision.