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What Is an Automated Market Maker (AMM) and How Does It Determine the Price of a Crypto Asset?

A protocol using liquidity pools and a mathematical formula (e.g. x y=k) to determine price based on the token ratio.
Greeks.Live11.11.25

What Is an Automated Market Maker (AMM) and How Does It Determine the Price of a Crypto Asset?

An AMM is a protocol used by decentralized exchanges that replaces the traditional order book with liquidity pools and a mathematical pricing algorithm. The most common is the constant product formula (x y = k), where x and y are the quantities of two tokens, and k is a constant.

The price is determined by the ratio of the tokens in the pool, and trades shift this ratio, thus changing the price.

How Do Automated Market Makers (AMMs) in DeFi Replace Traditional Market Makers?
What Is the Risk Associated with Impermanent Loss in Decentralized Finance (DeFi) Liquidity Pools?
How Does an Automated Market Maker (AMM) Algorithm Maintain the Constant Product in a Liquidity Pool?
How Does a Decentralized Exchange’s Automated Market Maker (AMM) Model Handle Slippage Differently than a Traditional Order Book?

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