AMMs in cryptocurrency: what an Automated Market Maker is and how it works

The year 2020 marked a boom in the development of the DeFi market, and AMMs (automated market makers) became one of the main components of this segment.

As of July 2026, TVL in cryptocurrency AMM protocols exceeds $11.3 billion. At its peak in November 2021, this figure reached almost $74 billion.

What is an AMM (Automated Market Maker) in cryptocurrency?

An AMM (Automated Market Maker) in crypto is an algorithmic protocol with a built-in smart contract that automatically determines the value of digital assets.

Cryptocurrency prices in an automated market maker protocol are calculated using mathematical formulas rather than an order book, as is the case on traditional centralized cryptocurrency exchanges.

AMM technology has become fundamental to the DeFi market and is used on decentralized exchange platforms. In essence, this technology has made access to market liquidity available not only to professional market participants, such as brokers, liquidity providers, and large traders, but also to a wide range of cryptocurrency users.

The first AMM was the decentralized exchange Bancor, launched back in 2017, during the first major cryptocurrency boom. Bancor was the first project in the cryptocurrency industry to introduce a liquidity model based on smart contracts.

However, the AMM mechanism became widely adopted in the cryptocurrency market in 2018 with the launch of Uniswap, currently the most popular decentralized exchange. This exchange used a simplified and more understandable AMM model for cryptocurrency, which became one of the reasons for the platform's high popularity.

Uniswap established a standard that was later adopted by other cryptocurrency AMM protocols. In 2026, the number of active AMM protocols exceeds 50 and continues to grow.

How an AMM (Automated Market Maker) works in cryptocurrency

One of the main components of an AMM in crypto is a liquidity pool, which consists of tokens locked in a smart contract.

Users purchase cryptocurrency through a smart contract, which automatically processes all transactions by "taking" assets from the AMM liquidity pool. The cryptocurrency price is automatically adjusted based on supply and demand.

To bring the price closer to the market rate, AMM protocols use oracles, specialized services that provide real-time data on cryptocurrency prices across different exchanges.

There are three most common types of AMM protocols:

CSMM (Constant Sum Market Maker), in which the sum of the number of tokens in the liquidity pool remains constant.
CMMM (Constant Mean Market Maker), which uses complex mathematical formulas to maintain a specified ratio between multiple tokens in a liquidity pool.
CPMM (Constant Product Market Maker), in which the product of the quantities of tokens in the liquidity pool is maintained at a constant level.

Key features of an AMM (Automated Market Maker)

The main feature of an AMM in cryptocurrency is that any user with access to a cryptocurrency wallet can provide liquidity to decentralized exchanges and earn income from the trading fees paid by traders.

Before the emergence of decentralized AMM protocols, access to liquidity was available only to qualified providers such as exchanges, hedge funds, banks, and large private investors.

In addition, AMM protocols provide quick access to trading through cryptocurrency wallets without requiring verification or the disclosure of users' identities. Most centralized trading platforms, by contrast, require users to complete an identification procedure in accordance with KYC* rules.

* KYC, or Know Your Customer, is a customer identification procedure that financial organizations, including cryptocurrency exchanges, are required to conduct to comply with legal requirements and prevent fraud, money laundering, and other illegal activities.

Finally, another feature of AMMs is the ability of cryptocurrency holders to participate in platform governance. Governance is usually organized through voting by participants who hold specific tokens.

Examples of AMM protocols

In addition to Uniswap and Bancor, there are dozens of other major AMM protocols. Among decentralized exchanges, the largest AMM protocols include:

PancakeSwap is the second-largest decentralized exchange after Uniswap, with TVL exceeding $2 billion. PancakeSwap was initially launched on the BNB Smart Chain blockchain but later added support for other networks, including Ethereum, Solana, Base, Arbitrum, and others;
Curve Finance is a decentralized exchange specializing in stablecoin trading. Curve Finance's TVL exceeds $1.2 billion, and the platform supports more than 30 networks, including Ethereum, BNB Smart Chain, Base, Polygon, and Hyperliquid;
Raydium is the leading decentralized exchange in the Solana ecosystem, with TVL exceeding $800 million;
Aerodrome is the leading decentralized exchange in the Base ecosystem. The TVL of the Aerodrome exchange is approximately $325 million;
Pump.fun is a platform for issuing tokens with its own trading platform. Pump's TVL is slightly above $240 million, but the exchange ranks second after Uniswap in terms of daily trading volume, which exceeds $600 million.

The Automated Market Maker mechanism is used not only by decentralized exchanges but also by lending protocols such as:

Aave is the second-largest protocol in the entire DeFi sector. Aave's TVL exceeds $14.5 billion, and by this metric, the platform is second only to Lido, a liquid staking protocol that allows users to hold assets in exchange for rewards;
Morpho is a lending platform that supports 40 blockchain networks. Morpho's TVL reaches $7.5 billion;
SparkLend is the third-largest AMM lending protocol and operates on the Ethereum and Gnosis networks. SparkLend's TVL (total value locked) reaches almost $3.7 billion;
JustLend is the leading lending platform in the TRON ecosystem, with TVL exceeding $3.2 billion;
Maple is an Ethereum- and Solana-based lending platform with TVL exceeding $2.2 billion.