AMM Design

Definition ∞ AMM Design refers to the structural framework of an Automated Market Maker. This framework dictates how liquidity pools operate and how asset prices are determined algorithmically without traditional order books. It involves selecting specific mathematical functions to manage asset ratios, impacting trading costs and capital efficiency within decentralized exchanges. Different designs address concerns like impermanent loss and slippage, influencing user experience and protocol stability. Optimizing these designs is key for decentralized exchange competitiveness.
Context ∞ Discussions around AMM Design frequently center on optimizing capital efficiency and mitigating impermanent loss for liquidity providers. New AMM models are consistently proposed, aiming to surpass the limitations of constant product market makers prevalent in early DeFi. Observing these design advancements helps interpret news regarding decentralized exchange performance, new protocol launches, and shifts in liquidity provision strategies. Future developments will likely involve adaptive fee structures and concentrated liquidity mechanisms.