AMM Explained: What Automated Market Makers Are and How They Power DeFi

When you trade crypto on a decentralized exchange like Uniswap or Biswap, you’re not buying from another person—you’re trading against a AMM, an automated market maker that uses math instead of human traders to set prices. Also known as algorithmic market maker, it’s the engine behind most DeFi trading today. Unlike traditional exchanges that match buyers and sellers using order books, AMMs use smart contracts and preset formulas to keep trading flowing 24/7. That’s why you can swap tokens anytime, even if no one else is actively trading them.

At the heart of every AMM is a liquidity pool, a reserve of two tokens locked in a contract that lets users trade between them. For example, a USDT/ETH pool holds both tokens, and the price shifts automatically based on how much of each token people buy or sell. The more liquidity in the pool, the smoother and cheaper your trade. But if a pool is too small, you’ll face high slippage or even get trapped in a rug pull—something we’ve seen with fake DEXs like HUA Exchange or HyperBlast. That’s why real DeFi platforms like ZKSwap or Blackhole DEX focus on deep liquidity and transparent code, not just flashy yields. And if you’re earning rewards by adding tokens to a pool, you’re not just a trader—you’re a liquidity provider, taking on impermanent loss risk for a share of trading fees.

AMMs don’t just make trading easier—they changed how we think about market-making. No more brokers. No more bid-ask spreads set by humans. Just code, math, and capital. But this system only works if the underlying blockchain is secure and the tokens are real. That’s why projects like Chainbase or TokenSets, which rely on clean data and automated strategies, thrive on AMMs, while low-cap tokens like WCO or ZEUS with no team or utility often get crushed by them. The same AMM that lets you swap BSW or CGPT fairly can also let scammers dump fake tokens fast.

What you’ll find here aren’t just reviews of exchanges. You’ll see how AMMs shape everything—from why BSW farming works on Biswap to why GDOGE died after its CoinMarketCap listing. You’ll learn why ZKSwap’s gas-free trades are possible because of ZK-Rollups, and why Kujira Fin’s volatility makes it risky even on a DeFi platform. Every post here connects back to one truth: if you’re trading crypto without understanding AMMs, you’re flying blind.