What Is the Role of an Automated Market Maker (AMM) in a DEX for Perpetual Futures?
An AMM replaces the traditional order book and market maker with a liquidity pool and a mathematical formula. For perpetual futures, the AMM calculates the synthetic price, manages the funding rate mechanism, and facilitates the leveraged trades.
Users trade against the pool, which is funded by liquidity providers. The AMM smart contract ensures continuous liquidity and automated price discovery.
Glossar
Liquidity Providers
Capital ⎊ These entities supply the necessary assets to decentralized exchanges or automated market makers to facilitate continuous trading in crypto derivatives and options.
Automated Market Maker
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.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.