CashboardGlossary · Defi
What is an automated market maker?
An automated market maker (AMM) is a DEX design that prices trades with a formula over pooled tokens instead of matching buy and sell orders.
How does an automated market maker work?
An AMM swaps the order book for a pricing curve. The best-known curve is constant product, x times y equals k, used by Uniswap v2 and Raydium's standard pools. The product of the two reserves has to stay the same after each trade, fees aside. Buy a token and its reserve shrinks, so its price climbs along the curve.
AMMs are why on-chain spot trading took off on chains with expensive blockspace. Market makers constantly posting and cancelling quotes would pay too much in fees there, and an AMM does not need them. Anyone can open a pool for any pair. So new tokens almost always start trading on an AMM, and memecoins that graduate from a launchpad's bonding curve move into an AMM pool.
Other curves do other jobs. Curve's stableswap stays very flat around a 1:1 ratio, for assets that should trade at par. Concentrated liquidity AMMs let providers pick a price range. Some newer designs pull in oracle prices or mix pools with an order book.
Hypothetical example: a pool holds 1,000 SOL and 150,000 USDC, so k is 150 million and SOL is priced at $150. Buying 10 SOL costs about $1,515 before fees and leaves the pool price near $153. Taking 1 percent of the SOL out of the pool pushed the price up about 2 percent. The bigger the trade relative to the pool, the steeper the impact.
Also called: AMM.
Where does an automated market maker show up in Cashboard?
Raydium pools shows Raydium's standard AMM pools and its CLMM pools with TVL, 24-hour volume, fees and APR. Trending on-chain ranks active pools by network and shows each pool's 24-hour volume next to its liquidity, so you can see how hard a pool is being worked.
Frequently asked questions
What is the difference between an AMM and an order book?
An order book matches buyers and sellers at the prices they post. An AMM has nobody on the other side: you trade against a pool, and a formula sets the price from the pool's reserves. Order books need active market makers, while AMMs only need someone to deposit liquidity.
Where can you read more about automated market maker?
Related terms
Last reviewed . Market data in Cashboard comes from the providers named on each widget and may be delayed. Nothing here is financial advice.