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What Is an Automated Market Maker (AMM) and How Does It Differ from a Traditional Order Book?

An AMM is a smart contract that replaces a traditional order book with a liquidity pool and a mathematical formula to determine asset prices.
Greeks.Live05.11.25

What Is an Automated Market Maker (AMM) and How Does It Differ from a Traditional Order Book?

An Automated Market Maker (AMM) is a type of decentralized exchange protocol that relies on a mathematical formula to price assets. Instead of using a traditional order book where buyers and sellers create orders, an AMM uses a liquidity pool.

Traders trade against the pool, and the price is determined by a formula based on the ratio of the two assets in the pool. This allows for trading to occur without needing a direct counterparty for a specific order, enabling constant liquidity for any asset pair in the pool.

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