# AMM

> Automated market maker. The smart contract behind a DEX that prices trades based on the size of two token pools.

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Source: What The Block! Dictionary v1.0 (last updated 2026-04-25), browsable at https://wtb.fudfomo.co.

## Definition

An automated market maker, or AMM, is the engine behind most decentralised exchanges. Instead of matching buyers and sellers in an order book, an AMM uses a formula and a pair of token pools to set the price automatically.

The most common formula is x times y equals k, made famous by Uniswap. Bigger pools mean more stable prices, while smaller pools see prices move more sharply when somebody trades against them.

## Related terms

- [DEX](https://business.fudfomo.co/glossary/dex): A decentralised exchange. Trade crypto directly from your wallet, without an account.
- [Liquidity Pool](https://business.fudfomo.co/glossary/liquidity-pool): A shared pot of two tokens that lets people trade between them on a decentralised exchange.
- [DeFi](https://business.fudfomo.co/glossary/defi): Decentralised finance. Apps that offer lending, trading, and saving on a blockchain instead of through a bank.
- [Slippage](https://business.fudfomo.co/glossary/slippage): The gap between the price you expected when you placed a trade and the price you actually got.

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