Automatic Market Maker
The continuously clearing coordination and pricing mechanism.
Automatic Market Makers (AMMs) have transformed financial markets by replacing traditional order books with algorithms that continuously determine prices based on the current state of the market. Rather than waiting for periodic auctions or relying on human market makers, AMMs provide continuous liquidity, allowing participants to trade at any time while prices adapt dynamically to changing conditions.
Electricity systems, however, present a fundamentally different challenge. Every transaction must satisfy physical laws, network constraints and continuously changing operating conditions. Prices cannot be determined solely by supply and demand; they must also reflect the evolving state of the electricity network itself.
FP-AMM extends the concept of an Automatic Market Maker from financial markets into the physical world. Instead of treating price as the outcome of a periodic optimisation, FP-AMM treats price as a continuously evolving control signal derived from both market activity and the physical state of the electricity system. Every accepted transaction updates the system state, triggering new prices that guide the next decision, creating a continuous feedback loop between engineering and economics.
This section introduces the principles behind Automatic Market Makers, explains why electricity requires a fundamentally different market-making mechanism, and describes how FP-AMM combines continuous clearing, network feasibility, physical state estimation and distributed price formation to coordinate millions of distributed energy resources in real time.