Power Market Maker
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| Written in | Solidity |
|---|---|
| Engine | |
| Operating system | Ethereum Virtual Machine (EVM) |
| Type | Decentralized exchange |
| License | GNU General Public License v3.0 |
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Power Market Maker Protocol (PMMP) is a decentralized finance protocol that enables variance swap exposure on any cryptocurrency or tokenized asset directly on a blockchain without any intermediaries.
Protocol Overview[edit]
PMMP is a constant function market maker implementation that facilitates the automated replication of a variance swap instrument called "Power Tokens." Deployed as a set of smart contracts on the Ethereum Virtual Machine (EVM), the codebase is completely open source and runs autonomously without any external dependencies or governance.
Through passive liquidity provisioning, participants can provide a two-token pair to a pool which constantly rebalances to desired portfolio composition. This portfolio is fixed to a trading function known as the "capped power" invariant introduced in the paper titled replicating monotonic payoff by Angeris et al (2021):[1]
The capped power payoff gives convexity to the Power Token holders when the portfolio is leveraged. To achieve this leverage, liquidity providing (LP) shares that are lend out are borrowed by another party. Power Token holders then pay funding to liquidity providers. The funding rate is determined by a jump rate model such as the one found in on-chain money market protocols[2]. The protocol nor any intermediary takes fees and the entirety of the funding goes to the liquidity providers.
References[edit]
- ↑ Angeris, Guillermo; Evans, Alex; Chitra, Tarun (November 2021). "Replicating Monotonic Payoffs". arXiv:2111.13740.
- ↑ Ian, Macalinao (December 2020). "Understanding Compound Protocol's interest rates".
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