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Automated Market Maker

AMM Overview

Thetanuts Finance v3 will utilize battle-tested Uniswap v3 pools to enable users to go long or short on on-chain options, and will form a key part Thetanuts Finance v3.

Parameters for the AMM

  • Uniswap v3 Liquidity Pools: Liquidity pool pairs will be denominated as $XYZ/$XYZ-C for Calls, and $XYZ-P/$USDC for Puts.
  • AMM Price: These pools also gives rise to an “AMM Price”, defined as the price of a Basic Vault LP Token as set by the relative concentration of assets within the liquidity pool given by the x*y=k.

Actors in the AMM

  • Liquidity Providers: Liquidity Providers provide TVL, enabling Traders to go long or short on on-chain options. Liquidity Providers receive a share of AMM Trading Fees.
  • Traders: With these Uniswap v3 liquidity pools, Traders can take on long volatility or short volatility positions.

Adding Liquidity into the AMM

To Add Liquidity into the AMM, a Liquidity Provider would deposit $XYZ (for Calls) or $USDC (for Puts) into the Thetanuts Finance v3 Add Liquidity module. Liquidity Providers will be entitled to option premiums from the Basic Vaults, lending interest from the Lending Market, trading fees from AMM, potential $NUTS token incentives, and potential additional token incentives.
For Calls - 50% of $XYZ will be deposited into the Basic Vault to generate $XYZ-C, with $XYZ-C being Boosted in the Lending Market. - 50% of $XYZ will be deposited into the $XYZ/$XYZ-C liquidity pool on Uniswap v3.
For Puts - 50% of $USDC will be deposited into the Basic Vault to generate $XYZ-P, with $XYZ-P being Boosted in the Lending Market. - 50% of $USDC will be deposited into the $XYZ-P/$USDC liquidity pool on Uniswap v3.