Virtual AMM (vAMM)
A mechanism mimicking automated market makers for perpetual swaps without holding actual assets.
What is Virtual AMM (vAMM)?
A virtual automated market maker (vAMM) is a pricing mechanism used by some Perp DEXs, like Perpetual Protocol, to facilitate perpetual swap trading without requiring a traditional liquidity pool of paired assets. Instead of holding actual tokens, a vAMM uses a mathematical formula (e.g., constant product formula like x*y=k) to determine prices based on virtual token balances, with real collateral stored in a separate vault, often in stablecoins.
The vAMM calculates trade prices and funding rates based on the balance of long and short positions, using oracle price feeds to anchor prices to the real market. This reduces impermanent loss for liquidity providers and allows efficient trading. However, vAMMs can be complex, and traders must understand slippage and funding rate impacts when using high leverage.
Related Terms
Decentralization (Prediction Market)
The distribution of control and data across multiple nodes in a prediction market, reducing reliance on a single authority.
UAE Stablecoin Regulation
UAE's Central Bank regulations restricting stablecoin use to licensed AED-pegged payment tokens, effective from 2025.
Alpha
An advantage in digital asset trading gained through early or exclusive access to information, strategies, or opportunities not yet widely known by market participants.
Ethereum Scaling
Ethereum scaling encompasses layer 1 protocol upgrades and layer 2 solutions that enhance the blockchain's transaction throughput.
Borrow Rate (Lending)
The interest rate borrowers pay to access funds from a lending pool.
Consumer Price Index (CPI)
A monthly measure of average price changes in a fixed basket of goods and services purchased by urban consumers, produced by the Bureau of Labor Statistics.