The innovation of algorithmic market making engines in DeFi.
Introduction to Automated Market Makers
101 Level Core Concepts Course
A decentralized exchange is a type of cryptocurrency exchange that is trustless and permissionless, meaning it is not controlled by a single entity or organization. Instead, these exchanges are run on a network of computers that use blockchain technology to facilitate the buying and selling of assets. This allows users to trade directly with each other, without the need for a central authority to facilitate the transaction. Because decentralized exchanges are not controlled by a single entity, they are generally considered to be more secure and resistant to hacking or other forms of interference.
An automated market maker (AMM) is a type of decentralized exchange that uses pricing curves and liquidity pools to determine the value of assets and match buyers and sellers in real-time. AMMs are commonly used on decentralized exchanges because they enable the exchange to operate without the need for a traditional order book, which is used on most centralized exchanges to match buyers and sellers.
Keep in mind, however, that while a vast majority of DEXs are AMMs, traditional "order book" DEXs also exist -- generally these are deployed to Layer 2 networks such as Polygon, Arbitrum, zkSync, or Optimism due to the lower gas costs.