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What Is the Fundamental Difference between an Automated Market Maker (AMM) and a Traditional Limit Order Book?

LOBs match specific buyer/seller orders, while AMMs use a mathematical function ($x cdot y = k$) to provide continuous, algorithmic liquidity.
Greeks.Live21.11.25

What Is the Fundamental Difference between an Automated Market Maker (AMM) and a Traditional Limit Order Book?

A traditional limit order book (LOB) matches buyers and sellers based on specific prices and quantities set by users. Liquidity is provided by users placing limit orders.

An AMM, however, uses a mathematical function to price assets and provide continuous liquidity. Users trade directly against the pool's reserves, and the price is determined algorithmically by the ratio of assets in the pool.

LOBs are common in centralized exchanges, while AMMs power decentralized exchanges (DEXs).

What Is the Fundamental Mechanism of an Automated Market Maker (AMM) in a Liquidity Pool?
What Are the Key Differences between a Constant Product AMM and a Dynamic Order Book?
How Do Automated Market Makers (AMMs) Work?
How Does an Automated Market Maker (AMM) Differ from a Traditional Order Book Exchange?

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