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The Dilemma of Solana On-chain Perpetual Futures AMM: From vAMM to Centralized Market Makers
Solana's Obsession with Order Books: Challenges and Future of On-Chain Perpetual Futures AMM
After researching Drift Protocol, I deeply understand Solana's obsession with the order book ( CLOB ). Implementing perpetual futures AMM on-chain is indeed exceptionally difficult, to the point of having to turn to embrace centralized market makers.
Although the vAMM( virtual AMM) established by Perpetual Protocol solves the problem of leveraging based on the spot AMM X * Y = K, the lack of centralized market makers means that the Perptual Futures AMM must address issues such as counterparty, depth, and price deviation through preset rules. This has led to Drift v1 being extremely complex in terms of adjustable parameters and formula expressions.
For example, Drift v1 needs to define various market conditions based on the contract price deviation status ( such as the healthiest market, sub-healthy market, etc. ), assess the long-short imbalance status, and stipulate corresponding liquidation and adjustment plans. In contrast, the order book seems to be more intuitive and concise.
Later, Drift launched the limit order feature, but the experience still differs from traditional order books. Currently, trading on Drift is supported by three mechanisms: JIT auctions, limit order book (, which is provided with liquidity by market makers ), and AMM (, which is provided by Drift without market maker intervention ). However, starting from August 7, Drift will completely abandon the AMM model and rely entirely on centralized market makers.
The core issues faced by vAMM include:
Even the founder of vAMM, Perpetual Protocol, is seeking new directions, considering adopting a more proactive market-making strategy and integrating Uniswap V3 features, believing that the solution for decentralized Perptual Futures lies in the organic combination of CLOB and AMM models.
This transformation essentially shifts the vAMM, which originally relied on mathematical formulas for pricing, to a model where market makers actively quote prices, transferring risk from the protocol to the market. Currently, it seems that the AMM model may only be suitable for spot trading, while on-chain contract trading still needs to seek a balance between decentralization and centralization.
vAMM( Virtual AMM) In-Depth Analysis
The vAMM of Perpetual Protocol uses the same X * Y = K constant product formula as Uniswap. However, unlike the spot AMM, the vAMM has a two-layer structure: LPs serve as collateral, while the actual assets are stored in the smart contract vault. Essentially, the vAMM is a price discovery mechanism after users leverage.
For example, suppose the current price of ETH is 4000 USDT, the vAMM pool initially contains 100 ETH and 400,000 USDT. When Alice uses 100 U as margin and goes long on ETH with 10x leverage, she deposits 1000 U as collateral into the smart contract. Perpetual Protocol credits 10,000 U to the vAMM, and the vAMM calculates that Alice should receive approximately 2.44 ETH based on the constant product formula.
vAMM adopts a funding rate mechanism similar to CEX Perptual Futures. However, unlike CEX, not every long position in vAMM has a corresponding short position. vAMM essentially trades based on price curves rather than real counterparties. This leads to the protocol needing to provide subsidies to attract real counterparties when facing long-short imbalances, making the stability of subsidy sources and the liquidity pool crucial.
Drift has innovatively launched the dAMM( dynamic AMM) based on vAMM, introducing configurable parameters to address issues such as price deviation, long-short asymmetry, and depth. The main configurable parameters include:
However, this model still has long-term issues: income growth is linear, while spending may grow exponentially in extreme market conditions, leading to net subsidies for unbalanced positions in the protocol.
Conclusion
Currently, it seems difficult to successfully control the on-chain AMM path purely through mathematical formulas. The essence of Perptual Futures still relies on centralized market makers to balance counterparties. The future development direction may lie in the organic integration of CLOB and AMM models, seeking a balance between decentralization and centralization.