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In a conventional or centralized financial exchange, an 'order book' is used to buy or sell a share or cryptocurrency, where the buyer and seller wait for each other at a fixed price. But in a decentralized exchange (DEX) or decentralized market where there is no central authority or intermediary, the revolutionary technology used to keep transactions running 24 hours a day, completely automatically without the presence of any direct buyer or seller, is called an automated market maker (AMM). In simple terms, it is a blockchain smart contract, which determines the price of cryptocurrency based on mathematical formulas and completes instant transactions without the traditional meeting of buyers and sellers. The basic working principle of AMM is very modern and it is completely dependent on liquidity pool. In this pool, ordinary users or liquidity providers (lp) usually deposit two different token pairs (e.g. eth/usdt) in equal proportions. Now when you go to a DEX like Uniswap or Pancakeswap and want to buy USDT with Ether, amm does not match you with a direct seller; rather, you withdraw USDT directly from the pool and deposit an equal amount of Ether into the pool. As a result, there is no liquidity or liquidity crisis in the market and the swap can be completed in the blink of an eye. In this entire process, amm uses a specific and constant mathematical formula to keep the balance and ratio of the prices of the two tokens. The most popular and widely used formula is: x \times y = k. Here x is the amount of the first token in the pool, y is the amount of the second token and k is a specific constant or fixed number that must always remain unchanged. Due to this formula, when you withdraw a token from the pool, there will be a shortage of the other token and the AMM will automatically increase the price of that token, so that the value of k always remains the same. This mathematical algorithm allows the market to always determine its own price without any human intervention. The biggest advantage of AMM technology is that it has ensured 100% decentralization and liquidity in the crypto market. Any small or new coin can now be easily bought and sold in the market without the approval of any major exchange. However, it also has some major challenges. For example, in the case of large transactions, 'Slippage' or small changes in price may occur. In addition, if the price ratio of the two coins in the pool changes dramatically compared to the open market outside, there is a risk of 'Impermanent Loss' or temporary losses for liquidity providers. In short, Automated Market Makers (AMMs) are a key pillar of Web 3.0 and modern decentralized finance (DeFi). They have proven that it is possible to operate a fully automated and independent financial market worth billions of dollars around the world, relying solely on open source code and the power of mathematics, without the need for a traditional order book or the multi-billion dollar backup of a large market maker company. Today's discussion concludes here. I hope you've found it interesting. Please share your thoughts on today's topic. Prayers for everyone. May everyone be well. Amen.