What Is an AMM? Automated Market Makers Explained
An automated market maker (AMM) is a DEX design that prices trades with a formula over a pool of tokens instead of an order book. How x*y=k works, with a worked example.
An AMM (automated market maker) is a type of decentralized exchange that prices trades with a mathematical formula over a pool of tokens, instead of matching buyers and sellers in an order book. Liquidity providers fund the pools, and anyone can trade against them at any time.
AMM definition
AMM stands for automated market maker. A market maker is whoever stands ready to buy and sell; in an AMM, that role is played by a smart contract holding a pool of tokens and a pricing rule.
The best-known rule is the constant product formula, x × y = k, popularised by Uniswap: the product of the two token balances must stay the same after every trade (before fees). Other designs include stableswap curves for assets that should trade near 1:1, and concentrated liquidity, covered in our CLMM explainer.
How an AMM works
- Liquidity providers deposit two tokens into a pool and receive LP tokens.
- A trader sends token A into the pool.
- The contract calculates how much token B must leave so the formula still holds, and sends it out, minus a fee.
- The pool's ratio has changed, so the price of A in terms of B has moved. Arbitrageurs then trade the pool back in line with prices elsewhere.
Larger trades relative to pool size move the price more, which is price impact. LPs absorb the other side of every trade, which is where impermanent loss comes from.
AMM example
Say a hypothetical pool holds 100 ETH and 300,000 USDC. k = 100 × 300,000 = 30,000,000, and the spot price is 3,000 USDC per ETH.
You sell 30,000 USDC for ETH (ignore fees for a moment). The pool's USDC becomes 330,000, so ETH must drop to 30,000,000 ÷ 330,000 = 90.91 ETH. You receive 100 − 90.91 = 9.09 ETH, an average price of 3,300 USDC: 10% worse than spot, because your trade was large relative to the pool. With a 0.3% fee, you receive about 9.07 ETH.
Afterwards the pool prices ETH at about 3,630 USDC (330,000 ÷ 90.91), so arbitrageurs sell ETH into it until it matches the wider market.
Why an AMM matters
- Always-on liquidity: anyone can trade or provide liquidity without permission, on any chain with smart contracts.
- Pool depth matters: small pools mean heavy slippage. Always check the minimum-received amount before you swap.
- MEV exposure: because prices are predictable from the formula, large swaps can be sandwiched by bots.
- LP risk: providing liquidity earns fees but exposes you to impermanent loss and contract risk.
AMM on JewelSwap
On MultiversX, AshSwap runs stableswap-style pools and xExchange runs constant-product pools; on Sui, Cetus and Turbos are concentrated-liquidity AMMs. JewelSwap's farms build on these DEXs, and JewelSwap also applies the AMM idea to NFTs, described in NFT AMM and DCA on JewelSwap.
Related terms
- DEX (decentralized exchange) — the exchange category AMMs belong to.
- Liquidity pool — the token reserves an AMM prices against.
- Liquidity provider (LP) — the users who fund AMM pools.
- Price impact — how far a trade moves the pool price.
- Sandwich attack — an MEV attack that exploits AMM price predictability.
- DEX aggregator — a router that splits trades across several AMMs.
Learn more on the JewelSwap blog
- Concentrated liquidity (CLMM) explained — the AMM design used by Cetus, Turbos and Uniswap v3.
- Impermanent loss explained — the main risk of supplying liquidity to an AMM.
- NFT AMM and DCA: trading NFTs like tokens on JewelSwap — how pool-based pricing works for NFT collections.
Frequently asked questions
What does AMM stand for?
AMM stands for automated market maker: a smart contract that holds a pool of tokens and quotes prices with a formula, so trades happen against the pool rather than against another trader.
AMM vs order book: what is the difference?
An order book matches buyers and sellers at the prices they set. An AMM always quotes a price from its formula and pool balances, so liquidity is continuous but large trades suffer more price impact.
What is x*y=k?
It is the constant product formula used by many AMMs. The product of the two token balances in the pool stays constant, so as one balance rises from a trade, the other must fall, which sets the price.
JewelSwap Crypto Glossary · educational, not financial advice. Updated 2 October 2026. Browse the full glossary.
