Virtual Automated Market Makers (vAMMs)

vAMMs are trading systems designed to replicate the liquidity depth of an AMM without actually having any liquidity. As the name suggests, the liquidity depth of these AMMs is derived from setting virtual parameters. Instead of setting up a Uniswap v2 pool with $5M in each of ETH and USDC, you create a virtual AMM that is a replica of the v2 pool’s liquidity curve as if it had $5M of ETH and USDC.

Assets are stored in a smart contract vault that manages all of the collateral backing the vAMM. In a traditional AMM, the liquidity comes from liquidity providers to facilitate trading, but in a vAMM the liquidity comes from the vault, outside of the vAMM. With the absence of liquidity providers, there is no impermanent loss.

We expand on Virtual AMMs Perpetual Protocol and Drift protocol in this report here.

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