What are Virtual Automated Market Makers (vAMMs)?
Let's find out Virtual Automated Market Makers (vAMMs) meaning, definition in crypto, what are Virtual Automated Market Makers (vAMMs), and all other detailed facts.
Before diving into the term Virtual Automated Market Makers (vAMMs), you must understand what is an automated market maker (AMM). In essence, an AMM is a system where its users can partake in token swaps which are facilitated by automated smart contracts. These token swaps are completed with the help of liquidity providers.
This is where Virtual Automated Market Makers (vAMMs) come in. vAMMs were built on the concept of AMMs. It’s a new type of automated market maker that introduces new functionalities such as derivatives and perpetual contracts.
Generally, there are two types of users who engage in vAMMs. They are liquidity providers and traders. Here, liquidity providers issue tokens then traders swap said tokens.
It’s important to note that real tokens are not swapped within vAMM systems. Only synthetic assets are allowed to be exchanged. These synthetic assets are usually tokenized derivatives.
Additionally, vAMMs aren’t used for spot trading. Instead, they are employed for the process of price discovery and in handling leverage. vAMM uses the same system as AMM exchanges to calculate the price of both entry and exit.
In order to calculate the prices, vAMMs initially used a specific formula, now they use a design that consists of concentrated liquidity and virtual tokens. This way the system is able to offer liquidity with leverage.