vAMM & LP
Dynamic market-making
Rollup Finance uses vAMM algorithm to implement intelligent market regulation, providing sufficient liquidity to the market.
Virtual Automated Market Maker (vAMM) means that the trader's real assets are not stored in the vAMM, but in the smart contract that manages all vAMM collateral.
Traditional AMM-based swaps occur at prices determined by a mathematical formula (x * y = k). vAMM also uses this formula, but has the following differences compared to traditional AMM:
zero trading slippage: vAMM does not require other liquidity providers to pre-place assets to provide liquidity, the trader's real assets are stored in the smart contract that manages the collateral, so there is no unearned loss in the vAMM model.
Low liquidity impact: vAMM's liquidity is not dependent on the liquidity provider and comes directly from the collateral outside of vAMM. In vAMM, traders themselves can provide liquidity to each other and do not need other liquidity providers. Therefore, liquidity is always present in vAMM.
Asset diversification: Since no actual assets are exchanged, non-crypto related products such as stocks, funds, precious metals, etc. can be easily launched for trading
Liquidity Provider
Liquidity providers facilitate robust liquidity in an ecosystem.
Anybody can provide liquidity and earn rewards for their service, the platform's fees will be distributed to the liquidity provider. This can be found in the "Reward" section of the https://app.rollup.finance/#/stake interface.
The liquidity they provide is used by the traders on Rollup.Finance to buy and sell positions of active trading pairs. The liquidity provider and the trader are counterparties.
When traders make profits, their profits are paid by liquidity.
When traders make losses, their losses become revenue for the liquidity.
To understand it more simply, let's look at the following simulation flow๏ผ
A is the liquidity provider.
B is the trader.
B opens a leveraged trade and loses 1 ETH. This loss becomes liquidity revenue
A gets a share of this revenue and liquidity reward.
B opens a leveraged trade and makes a profit of 1 ETH.
Liquidity is reduced by 1 ETH to pay B, but it does not affect A's liquidity reward, which comes from the platform's fees.