Automated market makers

Alfred Taudes and Christoph Siebenbrunner

Chapter 4 in Elgar Encyclopedia of Cryptocurrencies, Blockchain and DLT, 2026, pp 22-25 from Edward Elgar Publishing

Abstract: Automated market makers (AMMs) have emerged as an innovative concept in decentralized finance. AMMs are protocols for asset trading where trades happen against a pool of pre-committed liquidity at automatically determined prices. We explain important terms in the context of AMMs, such as slippage and impermanent loss, and we present their derivation for the case of a basic constant product market maker protocol, such as the common Uniswapv2 protocol. We discuss practical performance aspects of AMMs compared with central limit order book markets, and we present several alternatives and more advanced AMM protocols.

Keywords: Automated market maker; Decentralized exchange; Decentralized finance (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035339952
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