How Does an AMM Differ from a Centralized Exchange (CEX)?
A CEX uses a traditional order book model, matching buyers and sellers, and is run by a central company. An AMM is decentralized and uses a smart contract-based liquidity pool and an algorithm to facilitate trades.
AMMs offer permissionless trading directly against the pool, eliminating the need for a centralized intermediary.
Glossar
Liquidity Pool
Mechanism ⎊ A liquidity pool functions as an incentivized counterparty in decentralized finance, aggregating capital from multiple participants to facilitate trading without traditional intermediaries.
Permissionless Trading
Execution ⎊ Permissionless trading refers to the execution of financial transactions on decentralized platforms without requiring approval from a central authority.
Centralized Exchange
Custody ⎊ Centralized Exchanges function as custodians for digital assets, managing private key infrastructure and providing a regulated framework for asset holding, a critical component for institutional adoption within cryptocurrency markets.