An automated market maker (AMM) is the underlying technology that makes decentralization possible in DEXs, eliminating the need for an intermediary to facilitate crypto trades. AMMs are autonomous trading mechanisms that provide the necessary liquidity for trading pairs, allowing a trade to occur within a decentralized exchange.
AMM protocols use smart contracts to manage the price and liquidity of digital assets supported by the DEX. AMMs offer incentives to users to become liquidity providers locked in pools, receiving in exchange a percentage of transaction fees and free crypto tokens as rewards. Liquidity pools managed by AMMs offset the possibility of slippages at times of low liquidity.