Dynamic AMM

Definition ∞ A Dynamic AMM, or Dynamic Automated Market Maker, is a type of decentralized exchange protocol that automatically adjusts its pricing curve or liquidity parameters based on market conditions. Unlike traditional AMMs with fixed ratios, a dynamic AMM aims to optimize capital efficiency, reduce impermanent loss, or improve price execution for traders. These adjustments can be driven by external oracles or internal protocol logic.
Context ∞ Dynamic AMMs are a subject of considerable innovation in decentralized finance, seeking to overcome the limitations of simpler AMM designs. A key discussion involves the complexity of their algorithms and the potential for new types of arbitrage or manipulation. Future developments will likely concentrate on improving the predictability and auditability of dynamic AMM mechanisms to enhance user trust and capital allocation.