AMM

AMM stands for Automated Market Maker, which is a type of decentralized exchange mechanism that utilizes algorithms to determine the price of assets. Unlike traditional centralized exchanges, which use order books to match buyers and sellers at a certain price, AMMs rely on liquidity pools, which are pools of assets supplied by liquidity providers.

These liquidity pools allow traders to exchange assets directly without requiring a counterparty, making them ideal for decentralized trading. Traders can buy or sell assets by trading with the liquidity pool at the current market price, and the pool's algorithm will automatically adjust the price based on the supply and demand of the assets.

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 Sinfonia (Osmosis side), 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 misspelling of a popular token (e.g., BTSGS or CLAYY). It is very important to make sure one is purchasing the correct asset before executing a trade.