The key difference between Proactive Market Makers (PMMs) and conventional AMMs is their ability to change parameters such as pool ratios and price curves. This allows PAMMs to be adaptable to market conditions and flexible for different use cases.
The PMM pricing model uses dynamic slippage to encourage the market to constantly bring the pool back to equilibrium if an asset’s price skews too far in either direction. Unlike Uniswap v2, you don’t have to deposit both assets into the pool, LPs can choose to deposit only one of the assets. This can minimize impermanent loss, however, if inventory isn’t constantly brought back to equilibrium then LPs could result in permanent losses.