This is a great question about the core liquidity provision mechanism in DEFI! Understanding the differences among MM, AMM, and VAMM is key to understanding centralized and decentralized finance.
MM: Market Maker
MM is the core liquidity mechanism of centralized finance (CeFi) and traditional financial markets.
AMM: Automated Market Maker
AMM is the core liquidity mechanism of decentralized finance (DeFi) used for spot trading.
VAMM: Virtual Automated Market Maker
VAMM is a variant of AMM, specifically designed for derivatives trading.
The core differences between the three
Brief summary:
MM provides liquidity on the order book by humans or algorithms, and is mainstream in the centralized world.
AMM provides liquidity through mathematical formulas via smart contracts, used for DeFi spot trading.
VAMM is a variant of AMM, using formulas for derivative pricing, but the assets in the pool are virtual, used to support high-leverage trading.
Understanding these three, you grasp the core engines behind different types of trading platforms in the crypto market.
