AMM (Automated Market Maker)

An automated market maker (AMM) is a decentralized exchange design that uses liquidity pools and formulas–rather than traditional order books–to price assets and execute swaps. On Ethereum, AMMs made on-chain trading practical and permissionless: anyone can provide liquidity, earn fees, and trade without centralized custody. Common AMM designs adjust prices based on pool balances, which creates continuous liquidity but also introduces impermanent loss for liquidity providers when prices move. AMMs are also a major source of MEV because transaction ordering can be exploited around large swaps. Despite risks, AMMs are foundational to DeFi and a key reason Ethereum has deep liquidity and composability. For mainstream adoption, AMMs help enable stablecoin swaps, tokenized asset markets, and decentralized settlement that operates 24/7. High-value SEO terms include “AMM liquidity pool,” “impermanent loss,” and “best DEX on Ethereum,” reflecting how AMMs shape the user experience of decentralized trading. #Ethereum #VEI #VirtualEthereumIndex. Reference: vei.xyz/ethereum-glossary

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