hAMM Mechanism

Traditional centralized exchange (CEX) uses an orderbook to list all orders from market makers and market takers, then match these orders.

However this model has clear drawbacks: the liquidity of the market depends on the number of market maker and may change dramatically in extreme situations, CEXs have to recruit professional market makers to ensure the liquidity.

To ensure liquidity of trading, we drop orderbook model and use Hedged Automated Market Making (hAMM) as the liquidity solution for contract calculation, which is inspired by Automated Market Making (AMM) mechanism used by Uniswap.

Our operation model is different from other exchanges, including AMM based exchanges.

Most prominent difference is that users in Derify protocol do not swap with any pool. For traders who use collateral (e.g. USDT) to open or close long or short positions in certain derivative, when an order is placed, the hAMM system automatically calculates the open or close price, then the transaction is directly recorded by the system.

The goal for hAMM is "position hedged", which means that the sum of total long positions equals to the sum of total short positions in certain derivative.

Meanwhile, hAMM mechanism eliminate the market taker fee, since the liquidity is almost infinite.

Learn more about hAMM here.