Why have AMMs changed the game of decentralized trading?

The Automated Market Makers (AMMs) did not come out of nowhere. They arrived to challenge the traditional model of market makers, those intermediaries who make money from the difference between buying and selling. But what changes when this “other maker” comes into play? Everything.

The mechanism behind AMMs

Instead of relying on an intermediary that dictates prices, an AMM operates through a liquidity pool and simple mathematical algorithms. Imagine a pool containing DAI and ETH. When more ETH is deposited in exchange for DAI ( because the demand for DAI has increased ), the price of ETH naturally drops, as it is now more abundant in the pool. It is supply and demand in real-time, without intermediaries.

This approach democratizes market making. Anyone can provide liquidity and earn fees, without needing to be a large financial institution. That is why DEXs (decentralized exchanges) based on AMMs have exploded in popularity.

AMM versus the traditional order book

The difference is fundamental. An order book relies on buyers and sellers setting their own prices — it is an active discovery process. An AMM, on the other hand, lets the pool do the work. Prices adjust automatically as liquidity fluctuates.

Seems simple? It does. But there are nuances: price oracles monitor values on centralized exchanges in real-time. If there is a disconnection between the price on the AMM and the real market price, arbitrage opportunities arise — traders profit from the difference.

Accessibility without Compromise

The great attraction of AMMs is threefold: they operate without third-party custodians, eliminate the need for trust in intermediaries, and simplify P2P trades. Transactions become direct, fast, and transparent. For the average user, this means fewer barriers and lower costs.

This is the reason why AMMs not only coexist with traditional market makers — they are rewriting the rules of how liquidity works in the crypto space.