AMMS are an essential part of the DeFi ecossystem, enabling enabling permissionless and automatic trading of digital assets. Operating using liquidity pools and a constant mathemetical formula to determine all the prices. It aims to provide continuos liquidity, accessibility and descentralization.
AMMs don’t rely on buyers and sellers like the tradional financial market, instead they maintain liquidity by supplying the liquidity pools with crypto tokens.
When a user wants to trade, they swap one token for another directly through the AMM. The prices for this trade are determined by the pool's algorithm. This system allows AMMs to aim to provide continuous liquidity for a wide range of assets, which may make it easier to trade less popular cryptocurrencies.
Anyone may provide liquidity to AMMs and participate in trading, potentially with lower fees compared to traditional exchanges.
Two of the well-known AMMs in the market are Uniswap and PancakeSwap