An Automatic Market Maker (AMM) is a protocol that allows users to trade cryptocurrencies directly from their wallets using smart contracts. Instead of relying on traditional order books, AMMs use algorithms to price assets and facilitate trades.In an AMM system, liquidity is provided by users who contribute funds to liquidity pools. These pools contain pairs of tokens, which are used in trades. The prices of tokens are determined by a mathematical formula, often based on the ratio of tokens in the pool. This ensures that trades can be executed at any time, promoting liquidity.Users who add tokens to these pools earn fees from trades, incentivizing participation. However, they also face risks, such as impermanent loss, which can occur when the price of the pooled tokens changes significantly.Overall, AMMs streamline trading, enhance accessibility, and enable decentralized finance (DeFi) applications to operate without intermediaries. Their growing popularity has transformed how users interact with markets, making trading more efficient and inclusive.