Automated market makers (AMMs) are decentralized finance protocols that allow for the swapping of assets without a centralized intermediary. Smart contracts replace trading desks and order books in "making the market."

Trades are executed using assets from liquidity pools. Users create pools for specific tokens and deposit assets into them. Users who supply assets to a pool are called liquidity providers (LPs).

AMM pools are permissionless, meaning a user can make a pool for any asset. In Osmosis, pool creators are able to customize the transaction fees and exit fees paid by liquidity providers when withdrawing assets from the pool.

Permissionless pools are key to decentralization, but they also create risks. Some users list fake tokens, hoping to trick others into buying the wrong asset. A common version of this scam is a token with a slight mispelling of a popular token (e.g., OSMOO). It is very important to make sure one is purchasing the correct asset before executing a trade.

Last updated