Liquidity Pools: Instead of an order book, AMMs use liquidity pools to facilitate trade. Liquidity pool, a smart contract, is a fund of tokens (or coins). In AMMs, traders interact with the smart contracts, to enable liquidity and price discovery. Because of the permissionless nature, AMMs allow anyone to provide liquidity to the liquidity pool. The liquidity pool smart contract holds two or more tokens and allows anyone to deposit and withdraw funds from them, but only according to specific mathematical rules.