In this Halborn Twitter Spaces, Dave Schwed, COO at Halborn Security is joined by Danr and Kevin, co-founders of GammaSwap Protocol to discuss the 1st Oracle-free Volatility DEX on Arbitrum.
Read our notes to learn more.
What is Gammaswap Protocol?
The Gammaswap protocol is a decentralized application that allows users to trade the volatility of any ERC-20 token.
Users can short volatility or go long volatility to make money from the price movements of the token.
The protocol aims to address the inefficiencies and scaling issues of Automated Market Maker (AMM) pools by providing a modular scaling layer for different AMMs that use a constant product.
This can help new projects that have low floats and are volatile to be priced better by allowing users to buy options on those positions to hedge their risk.
The protocol offers options such as calls, puts, or straddles on any altcoin, with the only time a user would be liquidated is if the price didn't move at all.
The protocol aims to be a new type of options product that hasn't been available in DeFi yet and help AMMs scale up more and become more competitive.
Volatility Trading and Commission free token trading
Volatility trading is a way to trade risks or exposures that traders don't want to have by buying or selling options.
The goal of the company is to create a commission-free trading platform where all fees are paid by traders who trade volatility.
This would be achieved by matching traders who want to trade volatility and charging a commission for it.
The company also plans to create a new AMM that would have a higher Impermanent loss for LPs, but options traders could trade with higher leverage.
This would increase the demand for volatility, and LPs could be compensated based on volatility instead of volume.
This is expected to help expand the DeFi landscape, especially for lower-size trades where commissions eat up more of the cost of the trade.
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Constant Function of Market Makers
An Automated Market Maker (AMM) is a type of decentralized application or smart contract that uses a set of rules and algorithms to determine the prices of token pairs.
These rules are typically encoded into the smart contract, and the prices are determined automatically based on the input of users, who provide their tokens to the AMM.
One type of AMM is the Constant Function Market Maker (CFMM), which uses a constant function to determine the prices of token pairs.
Examples of CFMM include Uniswap, Balancer, SushiSwap, and Curve.
The benefit of using a CFMM is that it can protect against flash manipulations, as the prices are determined by a fixed set of rules.
CFMMs can be applied to different types of AMMs and different blockchain platforms, making it a versatile solution for token trading.
Short Gamma and Long Gamma
Short gamma means betting against volatility. If the market is volatile, the bettor loses money, but if the market stays calm, they make money.
On the other hand, a long gamma position is betting on volatility, where the bettor makes money if the market is volatile, but loses money if it stays calm.
It's similar to traditional options trading, where you can be either long or short volatility, but in this case, it's a perpetual option without centralized market makers.
More on Gammaswap
Gammaswap is a decentralized platform for trading options.
It differs from other options platforms because it operates as a market-oriented approach, where people bid each other up to determine the fair price.
It also aggregates liquidity from existing AMMs, which helps overcome the problem of fragmented liquidity that other options platforms face.
The liquidity providers on GammaSwap are always exposed to the fees from the people who borrow their liquidity.
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