Frequently Asked Questions
An AMM is a protocol used in decentralized exchanges (DEXs) to enable asset trading without order books. It uses liquidity pools and algorithms to set asset prices and allow automated trades.
Liquidity pools are collections of assets provided by users. These pools facilitate trades on AMMs, with prices set by algorithms. Liquidity providers earn fees from transactions made within the pool.
AMMs are crucial in DeFi because they decentralize trading, removing intermediaries and offering transparent, permissionless access to financial services.
Key risks include impermanent loss (value changes in the pool), smart contract vulnerabilities, and slippage (price variations during trades).
Liquidity providers earn rewards through transaction fees from trades in the pool. Some platforms also offer extra incentives like governance tokens.
