Automated Market Maker

AMM relies on a type of cryptographic encryption known as smart contracts, which automate the process of market making and provide liquidity for the exchange.

The basic principle behind AMM is to use an algorithm to adjust the price of a cryptocurrency based on supply and demand. When a trader wants to buy or sell a cryptocurrency, they submit a trade order to the exchange. The AMM algorithm then calculates the price of the cryptocurrency based on the ratio of supply and demand, and executes the trade using the exchange's liquidity pool. It uses smart contracts to automate the process of market making, which involves creating a liquidity pool of two different cryptocurrencies. The liquidity pool is created by users who deposit an equal value of both cryptocurrencies into the pool.

The smart contract then calculates the exchange rate based on the ratio of the two cryptocurrencies in the pool.