An automated market maker (AMM) is a system that provides liquidity to the exchange it operates in through automated trading. AMMs solved all the issues caused by human market makers. Now, these types of systems are also being introduced in blockchain-based decentralized exchanges.
On AMM-based decentralized exchanges, the traditional order book is replaced by liquidity pools that are pre-funded on-chain for both assets of the trading pair. The liquidity is provided by other users who also earn passive income on their deposit through trading fees based on the percentage of the liquidity pool that they provide.