🧪Protocol Design

A deep dive into nftperp v2's Fusion AMM: a hybrid AMM-DLOB protocol

Introduction

nftperp v2 presents a transformative liquidity protocol called the Fusion AMM, blending the strengths of both Automated Market Makers (AMM) and On-chain Decentralized Limit Order Books (DLOB). Below is a deep dive into the inner workings of the Fusion AMM and insights into its advantages, features, and flow for users.

Fusion AMM Overview

The Fusion AMM integrates two dominant trading architectures: AMMs and On-chain Decentralized Limit Order Books (DLOBs). It's designed to leverage the strengths of both systems:

1. Consistent Liquidity Provision: The AMM acts as an independent market maker within the DLOB, ensuring that there's always liquidity available along the entire price curve

2. Enhanced Market Depth & Minimized Price Impact: By incorporating the DLOB, the Fusion AMM ensures that large orders experience minimal price impact, providing a more efficient trading experience.

Core Features & Benefits

• AMM Overview (Base Layer):

  • Consistent Liquidity: Ensures there's always liquidity available for traders to initiate or close positions.

  • Customizable Parameters: Pool parameters can be tailored to cater to the unique market risks of individual assets.

  • Seamless Bootstrapping: Simplifies the process of introducing a new trading pair.

  • Automated Bid/Ask Strategy: Empowers anyone to become a maker on the protocol.

• DLOB Overview & Advantages:

  • Price Discovery: Grants autonomy and simplifies the process of discovering asset prices.

  • Fully On-chain: no need to trust an off-chain order book matching engine, all orders are stored, matched, executed on-chain.

  • Scaling: Elevates market depth, hence minimizing the price impact on sizeable orders.

  • Direct Interactions: Facilitates direct engagements between takers and makers.

  • Optimized Pricing: Reduces price fluctuations when orders are matched and ensures better pricing around the mid-price.