Unit 1 · Level 3 · AMMs & DEXes
The pool replaces the order book
A stock exchange matches buyers with sellers in an order book: no seller, no trade. An AMM (automated market maker) throws that out. liquidity providers fill a shared pot with two tokens, and a simple formula quotes you a price at any hour, for any size. You never wait for a counterparty; you trade against the pot itself. That one idea is why a token launched yesterday can have a live market today.
Free to play. No ads, no token, no account needed to start.
What you get asked
At its heart, what is an AMM?
There are no humans quoting prices and no orders being matched. It's a pot of two tokens and a formula that reprices after every trade.
On a DEX like Uniswap, you swap against a liquidity ___, not against another person's order.
The pool is the counterparty. That's why a swap never 'waits to fill': the pot is always open.
Match each piece of the machine to what it does:
Order books need people on both sides. AMMs need a pot, a formula, and people willing to fill the pot.
Why did AMMs win for crypto's thousands of tiny tokens?
A professional market maker won't touch a micro-cap token. A pool doesn't care. Anyone can seed one, and the formula does the rest.
So who actually sets the price on an AMM?
If the pool holds 10 ETH and €20,000, the pool's price is €2,000 per ETH. Change the ratio and you change the price, which is exactly what every trade does. 🐜
The rest of this unit
How a pot of tokens and one formula replaced the order book.