Mechanics of Automated Market Makers (AMMs) and Constant Function Market Makers (CFMMs )

What are AMMs and CFMMs?

An Automated Market Maker or AMM is a decentralized exchange (DEX) framework that pools liquidity from users and prices the assets within the pool based on a function or algorithm. The mechanics of AMMs can vary from one DEX to another but the main goals are to provide:

• deep liquidity,
• low transaction costs, and
• 24/7 markets with 100% uptime.