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How Does an ‘Automated Market Maker’ (AMM) Work?

An AMM uses a mathematical formula (like x y=k) and liquidity pools to determine asset prices on a DEX.
Greeks.Live17.11.25

How Does an ‘Automated Market Maker’ (AMM) Work?

An AMM is a protocol that manages a decentralized exchange (DEX) by using a mathematical formula, rather than an order book, to determine the price of assets. Liquidity providers supply tokens to pools, and the AMM's constant product formula (e.g. x y = k) ensures there is always liquidity for a trade, adjusting the price based on the pool's ratio.

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