# Automated Market Maker (AMM)
An automated market maker (AMM) is a type of cryptocurrency trading platform, based on computer algorithms, that facilitates the buying and selling of digital assets. It is designed to provide users with an efficient and cost-effective way to trade cryptocurrencies. Unlike traditional exchanges, AMMs do not require traders to manually match buy and sell orders; instead, trades are automatically executed through algorithmic software within seconds. This makes AMMs ideal for those who need access to fast liquidity or who want to avoid the time-consuming process of manual order matching.
The most common type of automated market maker uses something called a “constant product” formula. This formula takes two inputs from each side of the trade – supply and demand – and creates an equilibrium price by maintaining a constant ratio between these two values at all times. For example, if one user puts up 10 coins for sale while another offers 1 coin in exchange, then the resulting price would be set so that 10 coins can be purchased in exchange for 1 coin offered by the buyer. In this way, buyers and sellers will always receive fair prices according to their respective contributions towards liquidity in any given asset pair traded on an AMM platform.
Another popular form of automated market making uses what’s known as an “inverse demand curve”. Here buyers offer bids at different prices depending on how much they’re willing/able to spend; higher bids correspond with lower amounts offered while lower bids correspond with larger amounts offered due to economies of scale associated with bulk purchases or sales. Sellers also place offers along this same inverse demand curve in order to earn more money from their trades; however unlike traditional exchanges where there may only be one offer per price point here multiple offers exist which allows users greater flexibility when trading cryptocurrencies on this system .
In addition some platforms have begun implementing features such as automatic staking rewards which allow holders extra incentives for providing liquidity alongside arbitrage bots which help maintain balance within markets by continuously looking for discrepancies across multiple platforms before executing trades accordingly; both these features further increase efficiency among participants leading towards greater decentralization overall as well as increased security against front running attacks etc..
To sum it up: Automated Market Makers are electronic platforms built using computer algorithms that facilitate cryptocurrency transactions without relying solely upon human intervention thus improving speed complexity scalability & cost effectiveness associated with day-to-day crypto asset trading activities taking place online today!
