An Automated Market Maker (AMM) is an algorithmic trading mechanism based on smart contracts that replaces traditional order books with mathematical formulas (typically constant product formulas like x*y=k) to create liquidity pools backed by token reserves, allowing traders to transact directly with a contract rather than counterparties. This mechanism enables decentralized exchanges (DEXs) to offer permissionless, 24/7 token swapping services without requiring a central authority to match trades.
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