AMM

An automated market maker replaces the matching engine of a traditional exchange with a deterministic pricing rule. Liquidity providers deposit two assets into a shared pool, and the contract quotes every trade from the current ratio of those reserves. Nobody has to be on the other side of your order at that moment; the pool itself is always the counterparty.

The most common rule is the constant-product formula, where the product of the two reserves must stay the same across a trade. Buying one asset removes it from the pool and adds the other, which shifts the ratio and therefore the price. Small trades move the ratio slightly; large trades relative to the reserves move it a lot, which traders experience as price impact.

The design trades pinpoint pricing for guaranteed availability. An AMM never refuses a quote while the pool holds both assets, but the execution price depends entirely on trade size versus reserve depth. OneSwap's pools on Canton Network work this way: each pool holds two assets, charges a fixed fee on every swap, and pays that fee back to the people who supplied the liquidity.