AMM
An AMM or, Automated Market Maker, allows digital assets to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers. AMM users supply liquidity pools with crypto tokens, whose prices are determined by a constant mathematical formula. Liquidity pools can be optimized for different purposes, and are proving to be an important instrument in the DeFi ecosystem.[1]
Overview
A vital tenant to DeFi is decentralization, so the centralized orderbook method of trading will require an intermediary and will put the decentralization aspect at risk. AMMs offer a decentralized solution to this problem.
Autonomous
The autonomy of AMMs rely on pools of liquidity that are ready to be used. AMMs rely on liquidity providers (LPs) to obtain all of this liquidity. Using smart contracts, AMMs pool and balance liquidity to ensure the ratio of assets and price is maintained. Many AMMs, e.g. Uniswap, use the equation x*y=k to complete this.