An Automated Market Maker (AMM) is a system used in decentralized finance to enable trading without traditional order books. Instead of matching buy and sell orders, AMMs use mathematical formulas to set prices based on the ratio of assets in a liquidity pool.Liquidity pools are collections of funds provided by users, known as liquidity providers. These providers deposit pairs of tokens into the pool, earning a share of transaction fees in return. When someone wants to trade, the AMM calculates the new price based on the existing amount of tokens in the pool.AMMs help facilitate trading by allowing users to swap tokens directly with the liquidity pool, making transactions more efficient and often less expensive than traditional exchanges. They lower barriers to entry, enabling anyone to earn trading fees by supplying liquidity. However, they come with risks such as impermanent loss, which can affect the value of tokens held in the pool.Popular examples of AMMs include Uniswap and Balancer, which have significantly influenced how assets are traded in the decentralized finance space.