Virtual AMM (VMM)
A VMM uses a constant-product curve for price discovery and provides guaranteed on-chain liquidity similar to Quipuswap. The core difference is that it does not need any liquidity provider and thus, no liquidity pool. The pool is bootstrapped virtually within the protocol.
A VMM model has higher capital efficiency and is most suitable for under-collateralized derivative products as compared to the AMM model.
The salient features of the VMM model are as follows:
No dependency on LPs helps to offer higher liquidity and lower slippage necessary for trading derivatives
- 1.Price discovery happens using a constant-product curve; the protocol does not require an order book
- 2.The on-chain price reflects trades on protocol - the price only moves when positions are opened or closed
- 3.No actual swapping occurs. Unlike quipuswap, for example, where traders arrive with asset A and leave with asset B, on Zenith traders arrive with stablecoin and leave with the same. All settlement happens between traders trading on the platform
- 4.VMM is market neutral and fully collateralized at all times