What is an AMM (automated market maker)?

An automated market maker replaces the traditional order book with a formula. Instead of matching individual buyers and sellers, an AMM holds a pool of two tokens and prices every trade algorithmically based on how much of each token is in the pool. Anyone can trade against the pool at any time, and anyone can become a liquidity provider by depositing both tokens.

The classic design uses a constant-product rule, x · y = k, where the product of the two reserves stays fixed. Buying one token makes it scarcer in the pool and therefore more expensive for the next buyer, which is what produces price impact. This simple invariant is enough to create a continuous, always-available market without any central operator, custodian, or counterparty taking the other side.

AMMs are the engine under nearly every decentralized exchange, and later designs refine the basic curve — concentrated liquidity, stable-swap curves, and customizable pools all build on the same idea. The DEXes Sally routes through on Base and BNB Smart Chain, including Uniswap, PancakeSwap and Aerodrome, are AMMs. Understanding that prices come from pool ratios rather than a matched order book explains why trade size, pool depth, and slippage settings all matter when you swap.