When you trade crypto on a decentralized exchange like AMM, an automated market maker is a smart contract system that replaces traditional buyers and sellers with algorithm-driven liquidity pools. Also known as algorithmic market maker, it’s what lets you swap tokens without waiting for someone else to take the other side of your trade. Unlike old-school exchanges that match orders, AMMs use math—usually a constant product formula like x*y=k—to set prices automatically. This is the backbone of DEX, a decentralized exchange that operates without a central authority, relying on smart contracts and community liquidity platforms like Uniswap, SushiSwap, and Curve Finance.
AMMs work because people put their tokens into liquidity pools, reserves of paired tokens that enable trading by providing the necessary supply on both sides of a trade. You deposit, say, ETH and USDC, and the pool uses those funds to let others trade between them. In return, you earn a share of the trading fees. But it’s not free money—there’s risk. If the price of one token in the pair swings wildly, you can lose value compared to just holding. That’s called impermanent loss, and it’s why some users stick to stablecoin pools, like those on Curve Finance, where price swings are smaller.
AMMs changed everything. Before them, DeFi was stuck. You needed someone to buy or sell at your price. Now, you can swap any token, anytime, with just a wallet. That’s why nearly every new DeFi project launches with its own AMM. But not all AMMs are built the same. Some, like those on Polygon or Optimism, are faster and cheaper. Others, like on Ethereum, are slower but more secure. And some, like Polycat Finance or Libre Swap, are tiny, risky, and barely used. The ones you see in the posts below—Curve on Polygon, SushiSwap, Kodiak v2—are real examples of AMMs in action, each with different trade-offs.
You don’t need to code to use an AMM, but you do need to understand how it works. If you’re staking tokens, earning rewards, or swapping coins on a DEX, you’re interacting with an AMM. The posts here cover the good, the bad, and the ugly: from high-volume, low-slippage pools you can trust, to niche platforms with almost no liquidity and huge risks. Some are tools. Others are traps. Knowing how AMMs price assets, where fees come from, and how liquidity pools behave will help you avoid losing money on a bad swap.
Mooniswap is a DeFi exchange that boosts liquidity provider earnings by redirecting arbitrage profits back into liquidity pools. Learn how its virtual balances system works, how it compares to Uniswap, and why it's one of the best options for passive crypto income.
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