AMM (Automated Market Maker)
A smart contract that enables trading by using a mathematical formula to set prices based on the ratio of tokens in a liquidity pool.
Traditional exchanges use order books where buyers and sellers set prices. AMMs do something different: they use a formula (typically x * y = k) to automatically determine the price based on how many tokens are in the pool.
When you swap USDC for ETH on Uniswap, you're trading against the AMM. You add USDC to the pool and remove ETH. This changes the ratio, which changes the price. Larger trades relative to the pool size move the price more (this is slippage).
AMMs are the engine behind most DEXs. Uniswap, Curve, Aerodrome, and SushiSwap all use AMM models, though each has variations in their formula to optimize for different use cases. Curve, for example, uses a formula optimized for stablecoin swaps with minimal slippage.
Related Terms
DEX (Decentralized Exchange)
A cryptocurrency exchange that operates through smart contracts, allowing users to trade directly without an intermediary.
Liquidity Pool
A smart contract holding paired tokens (like USDC/ETH) that enables trading on a decentralized exchange.
Slippage
The difference between the expected price of a trade and the actual price you receive when the trade executes.
Swap
Exchanging one cryptocurrency for another, typically done through a DEX or exchange.
Learn More
This definition is provided for educational purposes. USDC.org is an independent resource and is not affiliated with Circle Internet Financial.