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.
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