AMM

AMMs are the architectural breakthrough that made decentralised exchange practical. Traditional exchanges use order books: buyers and sellers post orders at specific prices, and the exchange matches them when a buyer’s bid meets a seller’s ask. This works well on centralised platforms with deep liquidity but is hard to implement on-chain because matching orders requires a continuously running matching engine. AMMs solve the problem differently: they replace the order book with a pool of two tokens and a mathematical formula that determines the exchange rate based on the pool’s current composition.

Uniswap V2 popularised the constant product formula (x * y = k), where the product of the two token balances stays constant. If you put in some token A, you take out some token B, and the formula automatically calculates how much B you get based on how much A you added. The price moves smoothly as the pool composition shifts, with no need for a matching engine. Anyone can deposit equal values of both tokens to become a “liquidity provider” and earn a cut of trading fees in proportion to their share of the pool.

Newer AMM designs improve on the basics. Concentrated liquidity (Uniswap V3, Aerodrome, Raydium CLMM) lets liquidity providers specify a price range where their capital is active, dramatically improving capital efficiency. Stableswap pools (Curve) use a different formula optimised for trading between assets that should be 1:1 (USDC/USDT, ETH/wstETH). Each variant trades off simplicity for better performance in specific use cases.

For DeAI tokens, AMMs are usually where the on-chain liquidity lives. Venice’s VVV trades on Aerodrome (Base’s main DEX). Most DeAI tokens have at least one AMM pool somewhere on Uniswap, Aerodrome, or Raydium. The OYM Liquidity and Access dimension scores projects partly on the depth and stability of their AMM liquidity, because that’s what determines whether you can actually buy or sell the token at scale without slippage.