Glossary

Term	Explanation
AMM	short for Automated Market Maker
Automated Market Maker	a smart contract that is passively making markets, ie that is willing to trade with other market participants provided they match its price; often a CFMM
Base Asset, Base Token	another name for Risk Asset
Bonding Curve	the term bonding curve is ambiguous; it can refer to a characteristic function, and indifference curve, or a price response function
CFMM	short for Constant Function Market Maker
Characteristic function	the characteristic function is a common way to encode an AMM’s indifference curve; eg f = x*y is the indifference function for the original AMM
Constant Function Market Maker	an AMM that uses a bonding curve / indifference curve algorithm
Cost Curve	the cost curve is the supply curve in commodities markets where the different producers are sorted by production cost; see supply curve for more details
Divergence Loss	the loss an AMM portofolio experiences when the price of the assets diverge; often misleadingly referred to as impermanent loss
Fee	moneys paid to the AMM by trading counterparties
Impermanent Loss	another (but misleading) name for Divergence Loss
Indifference Curve	see mathematical function that determines which trades the CFMM is willing to enter
Numeraire	when looking at a trading pair, the numeraire is the asset that is used as a unit of account, and the risk asset is the asset that is considered to move; note that this designation is ultimately a choice
PRF	short for Price Response Function
Price Response Function	the price response function is the combined supply and demand curve of an automated market maker; it establishes a relationship between the price, and how much supply an AMM will add to or remove from the market
Quote Asset, Quote Token	another name for Numeraire
Risk Asset	see the entry for Numeraire
Supply Curve	supply curve is a standard microeconomic instrument that indicates how much supply will enter a market at a given price; when combined with the demand curve, which indicates how much supply will be removed at a given price, it allows to indicate the equilibrium price
Equilibrium Price	price that balances supply and demand; see Supply Curve and Demand Curve for more details
Market Clearing Price	Equilibrium Price (see there), especially in case of financial markets
Order Book	book of all orders on a given financial market; closely related to this market’s short term supply and demand curves
Concentrated liquidity	Liquidity that is both Range Bound and Levered; in other words, Concentrated Liquidity is only available to make markets in a very narrow range, and all unneccesary liquidity has been removed
Range-Bound liquidity	Liquidity that is only available to make markets within a certain range
Liquidity, Liquidity Pool	Funds (tokens) in the AMM that allow to make markets
Liquidity Providers	agents who contributed Liquidity to an AMM in return of an ownership stake of the Liquidity Pool, often evidenced by Pool Tokens
Pool Tokens	tokens handed out to Liquidity Provider as evidence for their Liquidity Provision; they allow to claim the fees earned, as well as to redeem the portion of pool Liquidity they represent
Levered Liquidity	Liquidity that appears to be bigger than the actual amount provided, eg by restricting it to a certain range
Virtual Balance	Liquidity balances that are considered to be in the pool for the purpose of the calculation, but that are not actually present