An Automated Market Maker (AMM) is a decentralized exchange that uses a liquidity pool and a pricing formula instead of matching buy and sell orders. Anyone can trade against the pool at the formula-determined price; anyone can supply liquidity to earn fees. AMMs were popularized by Uniswap and now power most on-chain trading.
The most common AMM is the constant-product formula (Uniswap V2): the product of two reserves stays constant before fees. This produces a smooth bonding curve where price moves continuously as trades happen. Variants include constant sum (better for stablecoin pairs but vulnerable to imbalance), Curve's stableswap (hybrid, low slippage near peg), and concentrated liquidity (Uniswap V3, where LPs deposit only into a chosen price range for higher capital efficiency).
AMMs replace the order book's bid-ask spread with a price impact based on trade size relative to pool depth. Big trades incur significant slippage; small trades barely move the price.
AMMs unlocked permissionless trading for any token pair. Setting up a new AMM market takes one transaction and a few minutes; setting up a centralized exchange listing takes weeks of negotiation. This is why long-tail token markets exist on AMMs and barely anywhere else.
On-chain AMM volume is part of the data flowing into the DeFi TVL endpoint on TerminalFeed.