What is an Automated Market Maker (AMM)?
An Automated Market Maker (AMM) is a type of decentralized exchange (DEX) that utilizes a bonding curve model, replacing the traditional order book system with liquidity pools
AMM Defination
AMMs represent a relatively recent innovation in DEXs and are now prevalent across most modern platforms. They were designed to compete with centralized exchanges by employing a passive market-making model managed through liquidity pools.
In AMMs, liquidity pools are established via smart contracts to facilitate peer-to-peer trades, enabling platforms to operate autonomously. Unlike the order book system, AMMs rely on self-executing algorithms within smart contracts to set asset prices and provide liquidity for trade execution. These smart contracts are often permissionless, allowing anyone to contribute liquidity and create their own pools.
By leveraging liquidity pools—collections of two or more assets—AMMs enable traders to execute trades on DEXs without the need to find matching bid/ask orders, ensuring continuous market availability around the clock.
DMM in stock market?
Designated Market Makers (DMMs) are responsible for maintaining fair and orderly markets for their assigned securities. They manage this task through both manual and electronic means, facilitating price discovery during market opens, closes, and times of trading imbalances or instability.
