In a Dynamic Automated Market Maker, dynamic variables are incorporated into CFAMM. Bancor v2 was the first AMM to introduce dynamic weights to mitigate impermanent loss. This model was also further developed by Power Pool and 1inch founder Anton Bukov.
In a DAMM, the weights of the pool are changed based on an external controlling signal, like an oracle. Instead of immediately selling or buying either side of a 50/50 liquidity pool and realizing impermanent loss, the target weight balance changes based on the controlling signal and optimizes the weight to maximize profit for the LPs.
