How Does an AMM for Futures Differ from an AMM for Spot Token Swaps?
A spot AMM primarily manages a two-asset liquidity pool (e.g. ETH/DAI) and uses a simple product formula to determine the exchange rate.
A futures AMM is more complex; it manages synthetic assets, incorporates leverage, and includes a funding rate mechanism. It must also handle liquidation logic and often relies on a virtual pool size to manage the open interest of the leveraged positions.
Glossar
Open Interest
MarketExposure ⎊ Open Interest represents the total notional value of all outstanding, unsettled derivative contracts ⎊ such as options or perpetual futures ⎊ that have not yet been closed out or exercised.
AMM Protocol
Mechanism ⎊ An AMM Protocol utilizes liquidity pools governed by a mathematical function to determine asset exchange rates algorithmically, removing the need for traditional order books.
Futures Amm
Architecture ⎊ Futures AMMs, within the context of cryptocurrency derivatives, represent a novel approach to decentralized exchange functionality, specifically designed to facilitate perpetual futures contracts and options trading.
Spot AMM
Mechanism ⎊ Spot AMMs represent a decentralized exchange protocol utilizing an automated market maker model specifically for spot trading, differing from derivatives-focused AMMs by facilitating immediate exchange of assets rather than future contracts.
Liquidation Logic
Mechanism ⎊ Liquidation Logic refers to the set of pre-programmed, immutable rules embedded within a smart contract or exchange system that automatically triggers the forced closure of a leveraged derivatives position.
AMM
Architecture ⎊ Automated Market Makers (AMMs) represent a paradigm shift in decentralized exchange (DEX) design, moving away from traditional order book models to a constant function market mechanism.