Automated Market Makers (AMMs) adjust prices based on supply and demand, which means:

1. Price discovery: AMMs continuously update prices to reflect the current market equilibrium.

2. Balancing orders: AMMs adjust prices to match the quantity of buy and sell orders, ensuring a balanced order book.

3. Reflecting market sentiment: AMMs incorporate market sentiment, as expressed through buy and sell orders, into price adjustments.

4. Real-time pricing: AMMs update prices in real-time, reflecting the dynamic balance of supply and demand.

5. Efficient pricing: AMMs strive to maintain efficient prices, minimizing deviations from fair market value.

6. Liquidity provision: AMMs provide liquidity, enabling traders to buy and sell at prevailing market prices.

7. Market clearing: AMMs help clear the market by matching buy and sell orders at equilibrium prices.

By adjusting prices based on supply and demand, AMMs facilitate a self-sustaining market ecosystem, where prices reflect true market conditions, and traders can rely on fair and efficient execution of their trades.