Speculative AMM (sAMM)
he Speculative AMM is a Volatility Pricing System. AMMs based on volatility will be one of the mainstream DEXs in the future. DEXToken's Speculative AMM is a set of self-developed algorithms. Developers interested in the mathematical principles behind the Speculative AMM can refer to the original paper: Volatility effect on the adoption and valuation of tokenomics.
Speculative AMM uses blockchain volatility for pricing. The main technical features are as follows:
- The price depends on the circulating supply and the amount of pledged coins in the DEXToken liquidity pool.
- The transaction price is converted from the above-mentioned circulating volume and the amount of pledged coins. The order quantity is not the main factor affecting the price.
The price-stable AMM quotation system helps reduce price manipulation caused by excessive speculative exchanges. For digital asset holders, it can reduce holding risks.
Automated Market Makers are the backbone of decentralised exchanges, taking care of the order execution and token pooling via a set of algorithmic formulas and rules. While the concept of AMMs has been around in various forms, the rise of Decentralised Finance (DeFi) applications on the Ethereum blockchain created an exponentially increased demand for more advanced DEX and AMM solutions.
There are a number of AMM solutions, but they often come with downsides such as high slippage, reliance on third parties or impermanent loss. Realising that the existing AMM models are inefficient and unable to sustain institutional liquidity and needs, we started researching ways to solve these issues.
To facilitate this, we established the 'Tokenomics Research Center' in Taiwan, in cooperation with the Department of Mathematics of the National Taiwan University and the Department of Quantitive Finance of the National Tsing-Hua University.
The result of this extensive research effort culminated in the released Volatility effect on the adoption and valuation of tokenomics research paper and led us to the mathematical model which was implemented in the sAMM algorithm.
The sAMM uses volatility data derived directly from the Ethereum blockchain, removing the need of price-oracles to determine prices. To set the base price, the algorithm in principle takes into account a variety of blockchain metrics, such as the circulating supply of a token, userbase, transaction rate and other characteristics, as well as the amount of tokens submitted to the DEXG Swap liquidity pool.
The outcome of this is that the order quantity is no longer the main factor affecting the pricing of an asset. This stability-focused AMM quotation system reduces the risk for holders and price manipulation caused by excessive speculation on assets.
As different types of tokens have different attributes (deflationary, inflationary, dynamic, etc.), the sAMM needs to be closely adapted to those characteristics. The sAMM will accordingly be rolled out in an episodic release schedule throughout 2021. The v1.0 launch version of DEXG Swap will contain the Deflationary sAMM model and include all base functionalities. While the major updates will come with the implementation of new sAMM models, minor updates that expand the functionalities of DEXG Swap may occur in between.