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AMM stands for Automated Market Maker.
It’s the technology that powers decentralized exchanges like Uniswap and PancakeSwap.
Instead of matching buyers and sellers like a traditional stock exchange, an AMM uses a mathematical formula to set prices automatically based on the ratio of tokens in a liquidity pool.
Think of it like a vending machine:
-You put one token in (e.g., USDC)
-The machine automatically gives you the other token (e.g., Token X)
-The price is determined by how much of each token is available in the pool
This is why liquidity providers are essential – they supply the tokens that make the vending machine work.
What is impermanent loss?
– Temporary effect when pool assets move in price
– It’s not a real loss until you withdraw
– Fees earned often compensate for it over time
How we manage it:
– Choose high-volume pools
– Avoid highly volatile pairs
– Rebalance when needed
