DynamicFlow AMM (TBF.)
Algorithm, generalized by Ax11, that set asset prices and enable trading between assets.
Last updated
Algorithm, generalized by Ax11, that set asset prices and enable trading between assets.
Last updated
DFAMM enhances liquidity management by replacing the traditional x*y = k model with a price point-based system. This enables dynamic liquidity allocation and order execution, optimizing capital efficiency across different market conditions.
Instead of relying on constant product liquidity, DFAMM sets price points and distributes liquidity dynamically across bins, allowing for adaptive liquidity concentration and improved market efficiency.
Bin Concepts The AX11 Protocol utilizes the BIN concept to enhance capital efficiency and optimize gas usage across all pools. Each bin represents a 0.1% price step, ensuring precise liquidity segmentation and efficient swaps. With a 256-bit structure, AX11 can support up to 131,072 possible bins, providing deep liquidity distribution. The protocol employs a two-stage mapping process (256 → 256 ), effectively structuring liquidity using a 256x256 mapping system. Prices progress from bin 0 to bin 131k, dynamically adjusting based on ticks controlled by ALC (Automated Liquidity Concentration), ensuring optimal trading efficiency and price discovery.
In the AX11 Protocol, liquidity is organized using a hierarchical bin structure:
Bin: The smallest unit, representing a 0.1% price step.
Small Group: 8 consecutive bins are aggregated into one small group. representing a 0.8% price step.
Medium Group: 8 small groups are further combined to form a medium group. representing a 6.4% price step.
Large Group: 8 medium groups are then aggregated into a large group. representing a 51.2% price step.
This multi-tier grouping strategy reduces computational overhead and memory usage. Instead of processing every 0.1% price increment individually, operations can be performed on groups, small groups, or large groups, streamlining liquidity management and ensuring efficient price discovery and fee calculations.
After pool Initiation
Liquidity can be initialized at any price point, allowing for flexible market entry without requiring a fixed ratio of assets. The system evenly distributes price points X and Y across liquidity bins, ensuring an efficient spread of liquidity across different price levels.
After each trade (Trade USDC in for ETH in the pool)
When trade occur, the market price will move and the concentration between ETH-USDC would be as below. As ETH's liquidity partition would be fill in by USDC that traded in the pool.
Every 3 days, the ALC mechanism adjusts liquidity concentration based on TWAP (Time-Weighted Average Price) to maintain optimal market conditions.
After liquidity provision + trade
In case trade occurs and liquidity is provided in ETH-USDC pool, the market price would move according to mechanism of the protocol as above example. In addition, liquidity provider would provide in position that the example below. The liquidity would be distributed to the most concentrated position in that current market situation.
If the market experiences a sudden surge, the liquidity concentration decreases, preventing excessive exposure and reducing inactive liquidity.
The table below explains how Ax11 AMM differs from other AMMs in the market.
Capital Efficiency
✅
❌
✅
Auto-Compound Rewards
✅
✅
❌
✅
❌
❌
✅
❌
❌
✅
❌
❌
✅
✅
❌
✅
❌
❌
CPAMM -> Constant Product Automated Market Maker (Uniswap V2)
CLAMM -> Concentrated Liquidity Automated Market Maker (Uniswap V3)
DFAMM -> Dynamic Flow Automated Market Maker (Ax11)
