AMM Architecture

Definition ∞ AMM architecture describes the structural design of an Automated Market Maker, a type of decentralized exchange protocol. This design employs mathematical functions to price assets within liquidity pools, enabling automated trading without traditional order books. Key components include liquidity pools, constant product formulas, and liquidity provider mechanisms. Its construction allows for continuous trading and price discovery.
Context ∞ AMM architecture is a central topic in DeFi news, particularly concerning new decentralized exchanges, liquidity provision incentives, and advancements in capital efficiency. Debates often focus on impermanent loss, slippage reduction, and the introduction of concentrated liquidity models. Future developments include more sophisticated pricing curves and integration with Layer 2 solutions.