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What is automated market maker (AMM) in crypto?

The most essential part of the decentralized finance ecosystem is the automated market maker (AMM) - a fundamental protocol utilized by DEXs to allow anonymous transactions on the blockchain. In this article, we’ll answer your questions like, what is AMM in crypto and find out where market making takes place, how it works, and why it’s needed.

What does k mean in crypto?

The constant, represented by “k” means there is a constant balance of assets that determines the price of tokens in a liquidity pool. For example, if an AMM has ether (ETH) and bitcoin (BTC), two volatile assets, every time ETH is bought, the price of ETH goes up as there is less ETH in the pool than before the purchase.

What is the secret ingredient of AMMS?

The secret ingredient of AMMs is a simple mathematical formula that can take many forms. The most common one was proposed by Vitalik as: The constant, represented by “k” means there is a constant balance of assets that determines the price of tokens in a liquidity pool.

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