Automated Market Maker (AMM) is a system that utilizes a computer algorithm to enable the automation of digital asset exchange. AMM utilizes a decentralized liquidity pool to allow users to buy and sell crypto without a third party to manage transactions.
The liquidity pool is an important part of AMM because it acts as a source of liquidity for crypto-asset pairs to prevent high slippage. While liquidity providers work as constant suppliers of crypto assets for trading.
One decentralized exchange that has implemented an AMM is Uniswap. Uniswap is an Ethereum-based decentralized exchange that allows its users to supply liquidity to exchange between various assets or earn passive income.