Glossary
What is AMM?
An automated market maker (AMM) is the algorithm a DEX pool uses to price trades from its token reserves, instead of matching individual buy and sell orders.
The classic AMM formula is the constant product x · y = k, used by Uniswap V2: the product of the two reserves stays constant, so buying one token raises its price along a curve. Liquidity providers supply the reserves and earn fees.
Uniswap V3 extends this with concentrated liquidity, letting providers focus capital in a chosen price range for far greater efficiency.
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Related terms
- Liquidity poolA liquidity pool is a smart contract holding two tokens that traders swap against; its balances set the price via an automated market maker formula.
- Uniswap V2Uniswap V2 is the constant-product AMM design where liquidity is spread evenly across all prices and providers receive fungible LP tokens.
- Uniswap V3Uniswap V3 introduced concentrated liquidity, letting providers commit capital to a specific price range and represent each position as an NFT.
- Concentrated liquidityConcentrated liquidity lets a provider supply liquidity only within a chosen price range, earning more fees on the same capital than a full-range position.