AMMs are decentralized exchange protocols which rely on an algorithm to price assets instead of using an order book. An AMM uses trading pairs, for example ETH and BTC, without needing a counterparty on the other side to make a trade. Instead, you interact with a smart contract to make a market for you. On a decentralized exchange, this allows trades to happen directly between wallets. What price you get for an asset you want to buy or sell is determined by a formula in a peer to contract exchange.
