hAMM is a (liquidity pool) market making theory inspired by AMM. The key of hAMM is "long and short position hedged". When the system balance shifted away from "hedged" state, the arbitrage opportunity grows with the deviation, eventually encourage arbitrageurs to restore the balance state.
The mathematic form is , very similar to . When a transaction cause , such transaction needs to pay PCF to move forward, and another transaction that restore to will receive the PCF reward.
Derivative trading is different from spot trading. Spot trading is about "price discovery", thus the goal is to ensure the asset price in the liquidity pool equals to external market. However, derivative trading is about each profitable position will have a hedged position to pay out the profit, thus the goal is to ensure all positions are 100% hedged, if not, there is possibility that the profit cannot be paid out.
After taking everything into account, we choose hAMM as our solution.
hAMM is tailored for derivative trading. Comparing to traditional orderbook model, hAMM has all the advantages like other AMM solutions, with readily available liquidity and instant trading execution; comparing to other liquidity pool AMM solutions, hAMM has a simplified algorithm, eliminates slippage and impermanent loss, it's also easier for user to calculate trading expenses. hAMM is an integral part of our revolutionary Position Mining mechanism.
We use the medium price (excluding outliers) from external markets to determine our index price, thus your trading price is the fair index price of all the selected external markets. The index price changes with the market price but excludes extreme circumstance of a single exchange, better for user to hedge risk.
We will choose prices from lead exchanges as our source, exchanges are selected/deselected according to the liquidity and volume of the exchange.
Our code is open-sourced, easy for user to verify.
We use Oracles to ensure the price is open and transparent. Because original data come from external markets, the system will compare the received data to other external markets, to exclude outliers. Thus, when the Oracles are attacked by external forces, the attacked Oracles are very likely to be excluded by the system.
For potential attacks from Oracle providers, we have our own Oracles to ensure accuracy. However, our Oracles has no privilege, it's price may also be excluded if it makes mistakes.
In derivatives market, it's unsustainable to ask a fixed group of liquidity providers to infinitely pay out profits for traders.
We do not have specific liquidity pool to pay out liquidity, instead all positions are considered liquidity provider of their hedging positions. Obviously, all positions are created equal with no privilege, thus all positions can be used for Position Mining. As long as you open and hold positions in Derify protocol, you will continuously to receive rewards of trading fees and DRF tokens.
Because of the synergy between our cross market mode and Position Mining, Derify protocol created risk-free and slippage-free environment for liquidity providers. As long as the liquidity miners hold two completely hedged positions, they will never suffer any loss from price fluctuations, and cross market mode ensures the two positions will never be liquidated.
On the other hand, because mining only requires normal positions, which can also be leveraged, thus the system allows miners to use the highest leverage for Position Mining to increase their profit.
You only need to open positions for Position Mining and hold it.
Even if you only hold one, un-hedged position, as long as it's not liquidated, it generates stable income for you.
There are two ways for risk-free Position Mining:
Open and hold positions in Derify protocol, and hold hedging positions in external markets.
Open two completely hedged positions in Derify protocol.
We recommend the second option. We also provide the two-way position option for you, you can open two completely hedged positions and starts Position Mining by a single click.
Position Mining has very low risk. If you hold two-way positions, you are almost risk-free.
Under extreme circumstance, you may temporarily unable to close your two-way positions. But do not worry, your funds will always be secure, and you can simply close the position later.
Arbitrageur means professional traders who seeks risk-free arbitrage opportunities between different market.
Any transactions that caused the system to shift away from balanced state () will pay Position Change Fees (PCF) to the system, the PCF received will be used to reward transactions that restore the system to balanced state ().
Arbitrageurs can create transactions that may receive PCF rewards from the system, then open hedging positions in external markets. They will receive risk-free PCF rewards as well as Position Mining rewards.
Arbitrageurs can receive PCF rewards and position mining rewards, but they can also hedge their risk in external markets, thus this arbitrage is completely risk-free.
Generally, you need basic knowledge and experience of arbitrage between traditional exchanges.
We do not recommend non-professional traders to attempt arbitrage, because arbitrage requires expertise of the trader sometimes professional software and tools.
Clearing Keeper is the book runner of the states of all positions in the system. They mark positions that require change, to maintain the system's operation.
Currently, Derify protocol operates its own clearing keeper bots for clearing and execution of transactions. In the future, we will open the Clearing Keeper position for everyone, Clearing Keeper will compete for the quickest clearing and receive rewards.
Clearing Keeper positions are not yet open, please refer to our official website for further information.
Token Buyback means that we will allocate a portion of the trading fee income to directly buy our DRF tokens on the market. All tokens bought will be destroyed forever.
Buybacks can help the community to control the DRF tokens in circulation, and maintain its fair market price.
Buybacks will be governed and executed by smart contracts.
Generally, you will not notice any influence of the Token Buyback. However, Buybacks will help our community to maintain its consensus.