Overview

Equation: Balance Rate-Based AMM for Perpetual Contracts

Abstract

Since 2020, the rise of AMMs in the spot market, represented by Uniswap, has driven the rapid development of decentralized finance (DeFi). However, while the trading volume in centralized exchanges for perpetual contracts is much larger than that of spot markets, there still hasn't been an equivalent surge of AMMs for perpetuals.

We believe the core reason is the fundamental difference between the perpetual contract market and the spot market, and directly applying the current “Constant Function Market Maker (CFMM)” mechanism from spot to perpetual contract has inherent mechanism flaws.

Here, we propose a new AMM model based on the liquidity pool balance rate, which can effectively serve the price discovery function of perpetual contracts, while also creating a wealth of market-making opportunities for liquidity providers (LPs). LPs can share the platform's trading fee income by bearing the risk of temporary imbalances in the liquidity pool. We define this new mechanism as the Balance Rate Market Maker (BRMM).