Automated Market Maker (AMM)
What Is an Automated Market Maker (AMM)?
Think of a traditional exchange like a busy trade floor: you need a buyer and a seller to agree on a price before anything happens. An Automated Market Maker (AMM) flips that on its head. It replaces the "middleman" and the order book with a simple pool of money and a mathematical formula.
Instead of waiting for a person to match your trade, you’re trading against a liquidity pool, essentially a digital vault filled with tokens. When you want to swap SOL for USDC, the AMM uses a formula (most famously $x \times y = k$) to automatically adjust the price based on how much of each token is left in the vault.
AMMs are a foundational element of decentralized exchanges (DEXs), making it possible to trade digital assets directly from wallets in a permissionless, peer-to-peer manner. Because the process is built on blockchain smart contracts, it is transparent and operates without centralized intermediaries, giving full autonomy and control to users.
Some of the most recognized AMMs are Uniswap, SushiSwap and PancakeSwap. Initially, AMMs were unique to Ethereum, but have since expanded to other blockchain such as Solana, where the low fees make up for the slightly lower security. The most well-known AMMs on Solana are Raydium, Meteora and Orca.
A new innovation on Solana is proprietary AMMs, which are custom-built liquidity pools created and controlled by a specific project or platform, rather than open, permissionless protocols anyone can deploy or govern.
A newer development on certain networks is the concept of proprietary AMMs, which are custom-built liquidity pools operated by a specific project rather than fully open protocols governed by token holders. These systems may offer optimized trading pairs or specialized incentives, but they introduce greater centralization compared to fully permissionless AMMs.
KAST users engaging with DeFi and decentralized exchanges may encounter AMMs when providing liquidity or trading onchain, making this mechanism an important part of the broader crypto ecosystem.
However, KAST itself does not employ any AMMs or related mechanisms. In its KAST Earn program, yield is earned through various onchain lending strategies rather than using a liquidity pool.
Staking and lending each come with their own advantages and risks, so the right choice depends on the specific situation rather than one being universally better than the other.
