On-Chain Market Making

Definition ∞ On-Chain Market Making involves providing liquidity to decentralized exchanges or protocols directly on the blockchain. This process uses automated smart contracts to facilitate trades by maintaining asset reserves and adjusting prices based on supply and demand. Participants earn fees for contributing to these liquidity pools, enabling efficient trading without traditional intermediaries. It is a fundamental component of decentralized finance.
Context ∞ News often covers On-Chain Market Making in discussions about decentralized exchange growth, liquidity provision strategies, and impermanent loss. The efficiency and capital requirements of these automated market maker (AMM) models are continuously analyzed. Innovations in this area are critical for enhancing the overall liquidity and stability of the digital asset market.