As AMM, Diffusion replaces the buy- and sell orders in a classic order book market with liquidity pools (LP) of different assets valued relative to each other. When an asset is traded in a pool, the relative prices of the other assets shift, and a new market price for both is determined dynamically.
Anyone can become a liquidity provider for a pool by depositing the underlying tokens. In return, the provider receives pool tokens as a receipt. These tokens track pro-rata shares of the total pool and can be redeemed for the underlying assets at any time.