AMM Explained: How Automated Market Makers Power Decentralized Trading

When you trade crypto on a decentralized exchange like Uniswap or SushiSwap, there’s no broker, no order book, and no human making matches. Instead, it’s all handled by something called an AMM, an Automated Market Maker is a smart contract-based system that enables trading on decentralized exchanges using mathematical formulas instead of traditional buy-sell orders. Also known as automated market maker, it’s the engine behind most DeFi trading today. Unlike centralized exchanges where buyers and sellers wait for each other, AMMs use liquidity pools, a reserve of two or more crypto assets locked in a smart contract to enable instant trades to keep markets running nonstop. You’re not trading against another person—you’re trading against a pool of funds provided by users like you.

How does it actually work? Imagine a pool with 100 ETH and 200,000 USDC. The AMM uses a simple formula—usually x * y = k—to keep the ratio balanced. If someone buys 10 ETH, the AMM automatically sells them from the pool and adds 20,000 USDC back in, adjusting the price as it goes. This keeps the math consistent and prices moving smoothly. That’s why you can swap tokens anytime, even at 3 a.m. or during a market crash. But here’s the catch: if no one deposits funds into the pool, there’s no liquidity, and the AMM can’t function. That’s why liquidity providers, users who deposit crypto into AMM pools to earn trading fees in return are the unsung heroes of DeFi. They earn a cut of every trade, but they also risk losing money if token prices swing wildly—this is called impermanent loss.

AMMs aren’t just for big names like Ethereum. You’ll find them on Avalanche, BSC, Polygon, and even Solana. Platforms like LFJ V2.2 and Apex Protocol use AMMs to let users trade tokens without relying on centralized middlemen. Even smaller projects like CORGI, HERO, or ZAM rely on AMMs to launch their tokens and let people buy in right away. But not all AMMs are built the same. Some use constant product formulas, others use stablecoin-optimized curves or dynamic fees. That’s why some DEXs handle big price swings better than others. If you’re trading meme coins or new airdrops, you’re almost certainly using an AMM—and you need to understand how it affects your slippage, fees, and risk.

What you’ll find in this collection are real, no-fluff breakdowns of AMM-powered platforms, how they handle liquidity, where they succeed, and where they fail. You’ll see reviews of DEXs like LFJ V2.2 and Apex Protocol, deep dives into how tokens like NYM and SSF rely on AMMs to get off the ground, and warnings about scams that fake AMM interfaces to steal your funds. Whether you’re trying to earn fees as a liquidity provider or just want to swap tokens without getting ripped off, the guides here cut through the hype and show you exactly how AMMs work—today, in practice, on the chains you’re already using.