What Is a ‘Virtual Liquidity’ Mechanism in Some Derivatives AMMs?

Virtual Liquidity refers to a system where the trading protocol simulates a large amount of liquidity that doesn't actually exist in the pool, often achieved through high leverage or a specialized pricing curve. This is typically used in derivatives AMMs, such as those for perpetual futures, to enable large trades with low slippage.

The 'virtual' nature means the collateral is held separately, and the mechanism is primarily for pricing and risk management, not for token swaps.