AMM (automated market maker)

A smart contract or algorithm that provides liquidity and prices trades automatically based on a fixed mathematical formula, eliminating the need for traditional order books and designated counterparties.

Cluster: Information Theory

Related Concepts

• interval securities — A security that pays out if the outcome of a random variable falls within a specified interval. Enables prediction markets for continuous variables by allowing traders to express arbitrary endpoint precision.
• LMSR (logarithmic market scoring rule) — An automated market maker that prices trades using a logarithmic cost function, guaranteeing bounded loss.
• market scoring rules — A class of automated market maker mechanisms that subsidize trade by penalizing a market maker according to a proper scoring rule. Traders profit by moving prices closer to their beliefs, ensuring the market maker absorbs losses in exchange for eliciting honest probability estimates. LMSR is the most widely used instance.
• liquidity provision — Supplying capital so traders can buy and sell positions without excessive price impact or delays.

Articles about AMM (automated market maker)

• Log-Time Prediction Markets for Interval Securities by Miroslav Dudík, Xintong Wang, David M. Pennock, David M. Rothschild