Automated Market Making refers to a protocol that facilitates asset trading on decentralized exchanges without traditional order books. It utilizes mathematical formulas and liquidity pools to determine asset prices and execute trades. Users supply capital to these pools, receiving fees from transactions as compensation for providing liquidity. This method eliminates the requirement for intermediaries and constant human oversight in price setting.
Context
Automated Market Making is a foundational innovation within decentralized finance (DeFi), significantly altering how digital assets are exchanged. News frequently covers the performance of various AMM protocols, their liquidity provider incentives, and the risks associated with impermanent loss. Developments in AMM algorithms and their integration with other DeFi primitives remain a substantial area of interest for market participants and technologists.
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