Abstract

Automated Market Maker (AMM) is the core constituent of Strike. Strike's AMM has following properties:

1. AMM leverages a Constant Product Curve and Spread to adjust the price of derivatives. The Constant Product Curve is used to set the reference price, and the Spread is used to compensate the possible losses from AMM and make the AMM market neutral. Please see below for more details: Trading Against AMM.
2. Spread would be deposited into Insurance Fund but not distributed to stakers. Only the transaction fees are distributed to the stakers. This makes sure the stakers are not
3. If AMM unfortunately suffers losses, the deficit will first be covered by Insurance Fund. If the Insurance Fund is not enough to payback the losses, the FundTokens in Liquidity Reserve will make up for the remaining shortfall. For more details please see:  Multi-Collateral Staking on Strike Protocol.

The first release of Strike offers AMM in Perpetual Futures Swap, the workflow for AMM is presented below:

Creating a New AMM

Strike DAO will call Contract Factory’s createMarket function at the beginning of every derivatives contract and create a new AMM based on the following parameters:

• BaseAsset

  The tokens used for settlement. Strike uses DAI as BaseAsset on the first release. Other stable coins like USDC can also be used as BaseAsset in the future.

  Note that BaseAsset is not an ERC-20 token and no tokens are deposited into AMM. It's a record in AMM to keep track of the pricing model.

• QuoteAsset

  The derivatives contract, e.g. BTCH20, ETHH20, BTCDAI, ... etc.

  Note that QuoteAsset is not an ERC-20 token and no tokens are deposited into AMM. It's a record in AMM to keep track of the pricing model.

• BaseAssetAmount

  The initial amount of BaseAsset in AMM.

  $$ BaseAssetAmount = {TotalValueOfLiquidityReserves \over CollateralizationRatio} $$

• QuoteAssetAmount

  The initial amount of the QuoteAsset in AMM.

  $$ \mathit{QuoteAssetAmount = {BaseAssetAmount \over TWAP}} $$

  TWAP is the 60 minutes (or longer, this can be updated by governance) Time-Weighted Average Price of underlying asset from Oracle.

• SpreadRatio

  The spread in percentage. The spread is positive when purchasing long positions and negative when purchasing short positions. This rate can be set through governance.

• FeeRatio

  The transaction fees in percentage. This rate can be set through governance.

• Expiration

  The expiration time of this contract. Expiration is set to nil if this is a Perpetual Contract.

Trading against AMM

Like Uniswap, Strike's AMM uses a Constant Product Curve to set prices automatically. Since Futures Swap differs from Token Swap, A Spread is added on Constant Product Curve to compensate the possible losses and make the AMM market neutral.