AMM (Automated Market Maker)
Crypto exchange algorithm without an order book. Prices set by a math formula.
AMM (Uniswap, Curve) replaces order books with liquidity pools. Common formula: x*y=k. Larger trades = more slippage. Enabled trading long-tail tokens without CEX listing.
In plain words
A normal exchange uses an order book. AMM doesn't, it holds reserves of two tokens (ETH + USDC) in a smart contract, and a math formula sets the price from what's left in the pool. The bigger your trade vs the pool, the worse rate you get.
Example
Uniswap V2 ETH/USDC pool: 1000 ETH + 3M USDC. ETH = 3000. Buy 100 ETH = ~10% slippage. Small trades have negligible slippage.
Also known as: automated market maker, Uniswap, constant product