Solana Glossary
What Is an AMM?
An AMM is an algorithm that powers trading on DEXs using liquidity pools instead of order books. Learn how Raydium and Orca AMMs work.
An AMM (Automated Market Maker) is the algorithmic system that powers trading on decentralized exchanges. Instead of matching buy and sell orders (like traditional exchanges), AMMs use mathematical formulas and liquidity pools to determine exchange rates.
How AMMs Work
The most common formula is constant product: x * y = k. Where x and y are the reserves of two tokens, and k is a constant. When someone buys token A, they add token B to the pool and receive token A. The ratio changes, adjusting the price.
AMM Types on Solana
- Constant Product Market Maker (standard AMM used by Raydium)
- Raydium's order book-integrated AMM using OpenBook
- Allows LPs to provide liquidity in specific price ranges (Orca)
- Adjusts parameters based on market conditions (Meteora)