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Crypto Terms:  Letter A

What is Automated Market Maker (AMM)?

Meaning:
Automated Market Maker (AMM) - a liquidity pool protocol used in decentralized exchanges (DEX).
easy
1 minute

Let's find out Automated Market Maker (AMM) meaning, definition in crypto, what is Automated Market Maker (AMM), and all other detailed facts.

An automated market maker (AMM) is an autonomous protocol used by decentralized exchanges (DEX). The protocol uses smart contracts to provide liquidity to the exchange that traders can pool into. These smart contracts are known as liquidity pools.

Those contributing to the liquidity pool can earn passive income via trading fees. The income is calculated based on the percentage of their contribution to the pool. Uniswap, one of the best-known DEX platforms, uses this model of liquidity contributions and asset gains.

AMM systems were first developed in the 1990s by Shearson Lehman Brothers and ATD. Prior to the development AMMs, people would manually record liquidity-generating trades in order books.

However, order books were considered flawed, as they caused latency in price discovery on different markets. Besides, market makers who kept these books were capable of manipulating the records. Automated market makers were able to solve these issues and reduce the risk of human error or market fraud.

blockchain-based artificial intelligence platform that uses AEAs to connect with other AI applications to process <strong>real-time data<\/strong> and take actions based on it.<\/p>\n<p>AEAs connect to IOTA Streams, allowing economic agents to act autonomously by sharing and retrieving real-time data. Financial markets that require <strong>taking fast actions<\/strong> for higher profits are one of the main spheres where AEAs are used.<\/p>\n<p>Note that autonomous economic agents aren&rsquo;t <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contracts<\/strong><\/a> or <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-api/">APIs. However, they autonomously follow some rules without any external input. Besides, developers can create their own AEAs on the blockchain.<\/p>\n<p>Though the <strong>term economic agent<\/strong> is usually used in different contexts. It typically refers to a person who engages in economic activity such as purchasing goods and services or selling financial assets. An economic agent, in a broader sense, is any person, group, or <strong>entity<\/strong> that makes decisions about the distribution of scarce resources.<\/p>\n<p>In recent years, however, the term has been expanded to include non-human agents such as <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-bots/">bots. Given its growing popularity in this context, it's worthwhile to <strong>dig deeper into the concept of an autonomous economic agent<\/strong>.<\/p>\n<p>An autonomous agent, in its most basic sense, means that the agent is capable to self-govern. In other words, it can control its own actions. Besides, since an autonomous agent is not subject to external control or supervision, it must have its own objectives that it pursues using self-generated means.<\/p>\n<p><strong>These features<\/strong> can be quickly recognized by professional economists as the cornerstones of any economic theory that deals with rational behavior by economic actors. The notion that all economic players are rational actors who <strong>follow their own personal interests<\/strong> without any external guidance or influence from outside sources is a basic premise in neo-classical economics.<\/p>","definition":"a software entity by Fetch.ai and the IOTA foundation that can act on its own, without external input, for the owner's benefit.","status":"published","meta_title":"What is Autonomous Economic Agent (AEA)? Definition & Meaning | Crypto Wiki","meta_description":"Autonomous Economic Agent (AEA) meaning: Autonomous Economic Agent (AEA) - a software entity by Fetch.ai and the IOTA foundation that can act on its own, without external input, for the owner's benefit.","meta_keywords":null}" :prev-section="{"id":9190,"wikipedia_url":"https:\/\/en.wikipedia.org\/wiki\/Automated_clearing_house","level":"easy","author_id":1,"created_at":"2023-06-19T06:59:21.000000Z","updated_at":"2023-11-09T10:06:19.000000Z","slug":"what-is-automated-clearing-house-ach","title":"What is Automated Clearing House (ACH)?","section":"A","keyword":"Automated Clearing House (ACH)","content":"<p>An <strong>automated clearing house (ACH)<\/strong> is <strong>a digital network for transferring funds between financial institutions in batches<\/strong>. Numerous debit and credit transactions are handled at once. In general, the payments being processed are considered low-value, and the fees are adjusted to be low enough to pay off for the users.<\/p>\n<p>Some of the popular uses of ACH include:<\/p>\n<ul>\n<li><strong>Direct deposits<\/strong> &ndash; quick payment access. Used for receiving wages, bonuses, and commissions, pension disbursements, tax repays, etc.;<\/li>\n<li><strong>Split deposits<\/strong> &ndash; enables automatic savings and allows customers to redirect part of their funds to a savings or investment account each pay period;<\/li>\n<li><strong>Direct payments<\/strong> &ndash; the service that enables customers to make payments to other individuals or institutions, including paying for bills, donating, or purchasing goods and services.<\/li>\n<\/ul>\n<p>ACH was first introduced in the United Kingdom in <strong>1968<\/strong>, with the first US-based ACH, which was operated by The Federal Reserve Bank of San Francisco, launching four years later, in 1972. Today, around <strong>100 automated clearing houses<\/strong> operate worldwide.<\/p>","definition":"an electronic transaction processing network that is used to facilitate debit and credit transactions.","status":"published","meta_title":"What is Automated Clearing House? Definition & Meaning | Crypto Wiki","meta_description":"Automated clearing house (ACH) meaning: Automated clearing house - an electronic transaction processing network that is used to facilitate debit and credit transactions.","meta_keywords":null}" :model="{"id":68,"wikipedia_url":"https:\/\/en.wikipedia.org\/wiki\/Market_maker","level":"easy","author_id":1,"created_at":"2023-06-19T06:58:58.000000Z","updated_at":"2023-12-24T16:28:33.000000Z","slug":"what-is-automated-market-maker-amm","title":"What is Automated Market Maker (AMM)?","section":"A","keyword":"Automated Market Maker (AMM)","content":"<p>An automated market maker (AMM) is <strong>an autonomous protocol used by<\/strong> <strong>decentralized exchanges (DEX)<\/strong>. The protocol uses <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contracts<\/strong><\/a> to provide liquidity to the exchange that traders can pool into. These smart contracts are known as <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-liquidity-pool/">liquidity pools<\/strong><\/a>.<\/p>\n<p>Those contributing to the liquidity pool can <strong>earn passive income<\/strong> via trading fees. The income is calculated based on the percentage of their contribution to the pool. <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//goon//uniswap/" target=\"_blank\" rel=\"nofollow noindex noopener\"><strong>Uniswap<\/strong><\/a>, one of the best-known DEX platforms, uses this model of liquidity contributions and asset gains.<\/p>\n<p>AMM systems were first developed in the 1990s by Shearson Lehman Brothers and ATD. Prior to the development AMMs, people would manually record liquidity-generating trades in <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-order-book/">order books<\/strong><\/a>.<\/p>\n<p>However, order books were considered flawed, as they caused latency in price discovery on different markets. Besides, market makers who kept these books were capable of manipulating the records. <strong>Automated market makers were able to solve these issues and reduce the risk of human error or market fraud.<\/strong><\/p>","definition":"a liquidity pool protocol used in decentralized exchanges (DEX).","status":"published","meta_title":"What is Automated Market Maker (AMM)? Definition & Meaning | Crypto Wiki","meta_description":"Automated Market Maker (AMM) meaning: Automated Market Maker (AMM) - protocol used in decentralized exchanges (DEX) that has liquidity pools users can contribute to.","meta_keywords":null,"author":{"id":1,"user_id":1,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2023-05-11T07:18:20.000000Z","title":"Editor-In-Chief","slug":"aaron-s-editor-in-chief","description":"<p>Having completed a Master&rsquo;s degree on Economics, Politics &amp; Culture for the East Asia region, Aaron has written scientific papers with a comparative analysis of the differences between US&rsquo; Western and Japan&rsquo;s Collective forms of capitalism, 1945-2020.<\/p>\n<p>With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He&rsquo;s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.<\/p>\n<p>Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain &amp; Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.<\/p>\n<p>Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.<\/p>","user":{"id":1,"first_name":"Aaron","last_name":"S.","email":"aaron@bitdegree.org","email_sanitized":"aaron@bitdegree.org","email_verified_at":"2023-12-01T09:40:20.000000Z","must_verify_email":false,"is_registered_with_wallet":false,"status":"active","country":"LT","last_connected_ip":"88.119.132.125","image_id":2641,"referral_token":"05TMu2NysXOCn525","referred_by":null,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2024-01-09T15:22:21.000000Z","full_name":"Aaron S."}}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? The Pros & Cons","status":"published","modified_content":null},{"chapter_id":2,"order":4,"slug":"coin-vs-token","title":"Coin VS Token: How Do They Differ?","status":"published","modified_content":null},{"chapter_id":2,"order":5,"slug":"what-are-stablecoins","title":"What are Stablecoins, Altcoins & Wrapped Coins?","status":"published","modified_content":null},{"chapter_id":2,"order":6,"slug":"what-is-a-bitcoin","title":"Bitcoin: the Pioneer of the Crypto World","status":"published","modified_content":null},{"chapter_id":2,"order":7,"slug":"what-is-ethereum","title":"The Ultimate Blockchain for dApp Creation: Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":8,"slug":"what-is-cardano-in-crypto","title":"What is Cardano and What is It Used For?","status":"published","modified_content":null},{"chapter_id":2,"order":9,"slug":"what-is-shiba-inu-coin","title":"Shiba Inu: the Dogecoin 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Wallet?","status":"published","modified_content":null},{"chapter_id":4,"order":2,"slug":"hot-wallet-vs-cold-wallet","title":"Hot Wallet VS Cold Wallet: Which One to Pick?","status":"published","modified_content":null},{"chapter_id":4,"order":3,"slug":"non-custodial-wallet","title":"What are Non-Custodial Crypto Wallets?","status":"published","modified_content":null},{"chapter_id":4,"order":4,"slug":"what-is-metamask","title":"Metamask: The Leading Non-Custodial Wallet","status":"published","modified_content":null},{"chapter_id":4,"order":37,"slug":"how-safe-is-cryptocurrency","title":"The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?","status":"published","modified_content":null}]},{"id":5,"title":"NFTs","slug":"nfts","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-nfts.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/nfts-101.jpg","rating":100,"sections":[{"chapter_id":5,"order":2,"slug":"how-to-trade-nfts","title":"NFT Trading: The Ins and Outs","status":"published","modified_content":null},{"chapter_id":5,"order":3,"slug":"buying-nft","title":"Tips and Tricks of Choosing the Right NFTs","status":"published","modified_content":null},{"chapter_id":5,"order":4,"slug":"how-to-store-nft","title":"How to Store NFTs: Best Practices","status":"published","modified_content":null},{"chapter_id":5,"order":5,"slug":"how-to-create-an-nft","title":"How to Create Your Own NFTs?","status":"published","modified_content":null},{"chapter_id":5,"order":6,"slug":"how-to-make-passive-money-with-nft","title":"Making Passive Money with NFTs","status":"published","modified_content":null}]},{"id":6,"title":"dApps & Defi","slug":"dapps-and-defi","updated":true,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-dapps.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/dapps-defi-101.jpg","rating":80,"sections":[{"chapter_id":6,"order":1,"slug":"what-are-nfts","title":"What are Non-Fungible Tokens (NFTs)?","status":"published","modified_content":null},{"chapter_id":6,"order":1,"slug":"what-is-defi","title":"What is Decentralized Finance (DeFi)?","status":"published","modified_content":null},{"chapter_id":6,"order":2,"slug":"what-is-defi-2-0","title":"DeFi 2.0: The New Version of Decentralized Finance","status":"published","modified_content":null},{"chapter_id":6,"order":3,"slug":"what-are-dapps-in-crypto","title":"What Are dApps and How Do They Work?","status":"published","modified_content":null},{"chapter_id":6,"order":4,"slug":"defi-dapps","title":"Picking the Right dApps: Dos and Don'ts","status":"published","modified_content":null},{"chapter_id":6,"order":5,"slug":"what-is-web-3-0","title":"Web 3.0: The Future of the Internet","status":"published","modified_content":null},{"chapter_id":6,"order":6,"slug":"what-are-smart-contracts","title":"What is the Core Purpose of Smart 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Mining?","status":"published","modified_content":null},{"chapter_id":9,"order":3,"slug":"what-is-staking-crypto","title":"An Advanced Look into What is Staking Crypto","status":"published","modified_content":null},{"chapter_id":9,"order":4,"slug":"what-is-proof-of-stake-vs-proof-of-work","title":"Proof-of-Work VS Proof-of-Stake: The Differences That Matter","status":"published","modified_content":null},{"chapter_id":9,"order":5,"slug":"what-is-crypto-mining-rig","title":"Crypto Mining Rig: What It is and How to Build One?","status":"published","modified_content":null}]},{"id":10,"title":"Crypto Terms","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/crypto-101-glossary.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-glossary-101.jpg","rating":100,"sections":["A","B","C","D","E","F","G","H","I","J","K","L","M","N","O","P","Q","R","S","T","U","V","W","X","Y","Z"]}]" current-chapter="A" current-section="what-is-automated-market-maker-amm">