Dynamic Automated Market Maker (dAMM)
dAMM means Dynamic automated market maker. It is a Balancer AMM pool with dynamic weights changing based on external controlling signals.
Controlling signals can be based on oracle data feed or AMM itself (using AMM as a price censor based on changing token balances). Dynamic weights changing model was originally developed by the PowerPool team in collaboration with 1inch.exchange co-founder Anton Bukov back in October 2020. Main goals of dAMM are:
A) maximize capital gains for LPs B) decrease IL C) improve capital efficiency
In simple words, AMM has to keep the balance set in the code, for example 50/50 share of assets in the pool. It means that if 1 asset’s price dumps, then poll sells some tokens from the other share, balancing it to 50/50 proportion. So in this way the pool buys “loser” tokens. If the price of one of two tokens in the pool goes up, the pool will sell some tokens of the “winner” to keep the 50/50 balance. It gives so called impermanent loss.
dAMM allows to set the different rules for the pool preventing sales of the winner keeping the winner in the pool. It would optimize weights for maximizing profits of LP’s.