How Do Automated Market Makers (AMMs) Work?
AMMs are smart contract systems used by decentralized exchanges (DEXs) to create liquidity pools and determine asset prices algorithmically, rather than using a traditional order book. They rely on a constant product formula (e.g.
$x y = k$) to maintain the relationship between the quantities of two tokens in a pool. Liquidity providers deposit assets and earn fees from trades.
