What Is an Automated Market Maker (AMM)?
An Automated Market Maker (AMM) is a type of decentralized trading system used on blockchain networks that allows users to trade assets without a traditional order book or centralized exchange. Instead of buyers and sellers being matched directly, AMMs use smart contracts and liquidity pools to enable trades automatically based on predefined mathematical formulas.
In an AMM, users called liquidity providers deposit pairs of tokens into a pool. Traders interact with this pool by swapping one asset for another, and prices adjust algorithmically depending on the pool’s relative token balances. Providers earn fees from each trade, incentivizing participation and supporting deeper liquidity.
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.
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.
