AMM Explained: How Automated Market Makers Power Decentralized Trading
When you trade crypto on a decentralized exchange like AMM, an Automated Market Maker is a system that uses math instead of buyers and sellers to set prices. Also known as liquidity pool-based trading, it’s what lets you swap tokens without waiting for someone else to take the other side of your trade. Unlike old-school exchanges that match orders, AMMs rely on smart contracts and pre-funded pools of tokens. You’re not trading with another person—you’re trading with a pool of money locked in code.
This system runs on liquidity pools, collections of paired tokens like ETH/USDC that fund trades. The more money in the pool, the smoother your trade. If you add tokens to a pool, you become a liquidity provider and earn a cut of trading fees. That’s how platforms like KyberSwap Classic, a DEX aggregator that uses AMM protocols on Polygon keep things running. But AMMs aren’t perfect—they can suffer from impermanent loss, slippage on big trades, and sometimes get gamed by arbitrage bots.
AMMs changed everything. Before them, decentralized trading was slow, clunky, and limited. Now, you can swap almost any token in seconds, even ones with tiny markets. That’s why so many new coins—like HIPPOP, BANANAGUY, or DFY—launch on AMM-powered DEXes. They don’t need a centralized exchange to list. They just need a liquidity pool and a smart contract. But that freedom comes with risk. Many of the tokens you’ll see below are built on AMMs, but not all of them have real value. Some are just hype wrapped in code.
What you’ll find here are real breakdowns of how AMMs shape the crypto world. From the mechanics behind DeFi For You, a micro-cap token traded on decentralized platforms, to why projects like SWAPP Protocol, a blockchain project that never launched its token failed despite using the same tech, this collection shows what works and what doesn’t. You’ll see how AMMs enable everything from meme coins to serious DeFi tools—and how scams hide in plain sight by pretending to be part of the system.