Automated Market Makers (AMMs) work similarly to traditional order book trading platforms in that both set up trading pairs (e.g., ETH/DAI). However, the former does not require trading with a specific counterparty (another trader). In the AMM mechanism, traders interact with a smart contract to "create" a market for themselves.

In decentralized trading platforms such as Coinan Decentralized Exchange (DEX), trading takes place directly between users' wallets. If you sell a BNB for a BUSD on the DEX, then another customer in your transaction is buying the BNB with the BUSD in what we call a peer-to-peer (P2P) transaction.

If AMM is used, think of it as peer-to-contract (P2C). In this mechanism, the user trades directly with the contract, without having to work with a counterparty in the traditional sense.AMM does not use an order book, and therefore there are no order types, and the actual price at which the asset is bought and sold is determined by a formula. It is worth noting that future AMM designs may gradually break away from this limitation.

Although there are no counterparties, someone in AMM is still needed to create the trading market, right? Indeed. Liquidity in smart contracts still has to be provided by a liquidity provider (LP).

Automated Market Makers (AMMs) work similarly to traditional order book trading platforms in that both set up trading pairs (e.g., ETH/DAI). However, the former does not require trading with a specific counterparty (another trader). In the AMM mechanism, traders interact with a smart contract to "create" a market for themselves.

In decentralized trading platforms such as Coinan Decentralized Exchange (DEX), trading takes place directly between users' wallets. If you sell a BNB for a BUSD on the DEX, then another customer in your transaction is buying the BNB with the BUSD in what we call a peer-to-peer (P2P) transaction.

If AMM is used, think of it as peer-to-contract (P2C). In this mechanism, the user trades directly with the contract, without having to work with a counterparty in the traditional sense.AMM does not use an order book, and therefore there are no order types, and the actual price at which the asset is bought and sold is determined by a formula. It is worth noting that future AMM designs may gradually break away from this limitation.

Although there are no counterparties, someone in AMM is still needed to create the trading market, right? Indeed. Liquidity in smart contracts still has to be provided by a liquidity provider (LP).