What is an automated market maker?

Automated market makers (AMMs) are a type of decentralized exchange (DEX) that use algorithmic “money robots” to make it easy for individual traders to buy and sell crypto assets. Instead of trading directly with other people as with a traditional order book, users trade directly through the AMM.

What is a market maker (AMM) & how does it work?

Instead of trading directly with other people as with a traditional order book, users trade directly through the AMM. Market makers are entities tasked with providing liquidity for a tradable asset on an exchange that may otherwise be illiquid.

What are virtual automated market makers (vamms)?

Virtual automated market makers (vAMMs) such as Perpetual Protocol minimize price impact, mitigate impermanent loss, and enable single token exposure for synthetic assets. vAMMs use the same x*y=k constant product formula as CPMMs, but instead of relying on a liquidity pool, traders deposit collateral to a smart contract.

How do market makers work?

Before diving into the topic of AMMs, it's important to understand how regular market makers operate. In a traditional financial market, like the stock market, market makers are trusted parties who provide liquidity between buyers and sellers. Throughout most of history, centralised exchanges served to match buyers and sellers together.