Create a Standard Integration for FMMs

The purpose of this post is to start a discussion around creating a standard for integrating a new kind of DEX called a Formula Market Makers (FMMs) with 0x.

Status Quo

While the majority of DEXes today are AMMs (ex: Uniswap, Curve, Balancer), there are other types including order books (ex: dYdX) and PMMs. There is also a newer type called a Formula Market Maker (FMM), which will be the focus of this discussion.

Differences from Existing Solutions

  1. On Chain/Off Chain

AMMs are on-chain mechanisms while PMMs are off-chain mechanisms. FMMs are a hybrid mechanism consisting of both on and off chain components.

  1. Calculation of Prices

Many PMMs are run by trading firms that arbitrage DEX transactions with centralized exchanges, give quotes that are misleading or not firm, or stop running during periods of market volatility or outside of business hours. In contrast, FMMs operate according to a formula that makes them always on, always present, and fully part of the DEX ecosystem. The use of a publicly available formula is one of the distinguishing features of an FMM.

  1. Liquidity Providers

Part of the reason why AMMs have become so popular is because providing liquidity is permissionless and funds are kept in a non custodial smart contract. On the contrary, providing liquidity to PMMs and Order Books is closed off and typically sourced from institutional capital. FMMs use a similar model to AMMs, making liquidity provision easy and accessible for all.

Ease of Integration

FMMs are designed to be composable like AMMs.

Can take in variable input and send variable output - does not need to necessarily rely on an exact transaction. Easily composable because they can send output to arbitrary addresses, similar to the PLP API specified by 0x.

Example of an FMM

The earliest example of an FMM is Clipper, a DEX for small trades.

In our recent post on the yield earned by Clipper LPs on Polygon we suggested that, despite massive disruptions in crypto prices since Clipper was launched on Polygon, Clipper Pool LPs have made extremely competitive returns of more than 30% annualized on a crypto basis, bracketing out the effects of market prices.

During the same time period, a roughly comparable Uniswap pool was down about 12% annualized because of impermanent loss tied to crypto price fluctuations.

We believe Clipper’s Polygon deployment has been able to avoid significant loss because it is a new kind of market maker, a Formula Market Maker (FMM), which combines the best qualities of an AMM and a PMM. We can think about the distinction between an AMM and a PMM along several dimensions. Clipper’s FMM is sometimes closer to a PMM, and but generally hews closer to an AMM.

FMMs are the Future

We believe FMMs will grow in popularity within DeFi and we’d like to see 0x create a standard integration to make adding them easier. FMMs combine the best qualities of AMMs and PMMs together while abstracting the shortfalls away. In short, here’s what FMMs offer:

  • Non discriminatory pricing like AMMs (offers same rates to all traders)
  • Ease of LPing
  • Update prices faster than AMMs to reduce loss from arbitrageurs (benefits both LPs and Traders)
  • Composable

Full Writeup on FMMs: What is a Formula Market Maker (FMM)?

Proposal

  1. 0x Team works with Shipyard Software team to spec out the architecture and engineering estimate for supporting FMMs.
  2. Based on the estimate, the 0x Foundation makes a grant to whomever is leading the development (ex: 0x Labs or Shipyard Software).
148 Likes

Formula Market Makers are definitely the future! Clipper is the best one, I really hope 0x integrates with @clipper_Dex

21 Likes

great job! 0x integration of Clipper Dex would be perfect! FMM rocks!

11 Likes

Somethings are better not delayed, so is @0xProject × @Clipper_Exchange integration.

I really hope @0xProject understand that integrating with @Clipper_Exchange means a lot to DeFi users.

Indeed, It will be a game changer

Let’s do this @0xProject × @Clipper_Exchange :handshake:

13 Likes

Clipper × 0x integration would be great

6 Likes

Hope 0x integrates @Clipper_Exchange soon

10 Likes

Great to see integration with Clipper Dex.
LFG :rocket::fire: @Clipper_Exchange

5 Likes

0x should integrate this for the benefit of defi users,this is absolutely freedom of users…… almighty FMM

4 Likes

Integration of @Clipper_Dex and @0xPolygon unlocks the power of DeFi for everyone. That’s great!!!

4 Likes

Useful and great integration with Clipper Dex @clipper_Dex .

Its very useful with multichain.

4 Likes

Ahoy my Dear :smiling_face_with_three_hearts: :raised_hands:
Clipper is the BEST of the BEST :love_you_gesture: :metal: :call_me_hand:
I really hope 0x integrates with @clipper_Dex

Go ahead! :money_mouth_face:

6 Likes

Really like Clipper. Would be a great integration.

2 Likes

Clipper FMM has 25% gas improvement over Uniswap - integrating FMMs into 0x would be a boon for 0x users.

2 Likes

Wow, absolutely amazing 0x integration of Clipper

4 Likes

Somethings are better not delayed, so is @0xPolygon × @Clipper_Exchange integration.

I really hope @0xPolygon understand that integrating with @Clipper_Exchange means a lot to DeFi users.

2 Likes

clipper is the best DEX。

2 Likes

0x integrating with @Clipper_Exchange will definitely be a good move. It will definitely be perfect.

1 Like

Clipper is the most popular and worldwide dex ,you should need it!

1 Like

GOOG JOB VERY L[quote=“austin, post:1, topic:1187, full:true”]
The purpose of this post is to start a discussion around creating a standard for integrating a new kind of DEX called a Formula Market Makers (FMMs) with 0x.

Status Quo

While the majority of DEXes today are AMMs (ex: Uniswap, Curve, Balancer), there are other types including order books (ex: dYdX) and PMMs. There is also a newer type called a Formula Market Maker (FMM), which will be the focus of this discussion.

Differences from Existing Solutions

  1. On Chain/Off Chain

AMMs are on-chain mechanisms while PMMs are off-chain mechanisms. FMMs are a hybrid mechanism consisting of both on and off chain components.

  1. Calculation of Prices

Many PMMs are run by trading firms that arbitrage DEX transactions with centralized exchanges, give quotes that are misleading or not firm, or stop running during periods of market volatility or outside of business hours. In contrast, FMMs operate according to a formula that makes them always on, always present, and fully part of the DEX ecosystem. The use of a publicly available formula is one of the distinguishing features of an FMM.

  1. Liquidity Providers

Part of the reason why AMMs have become so popular is because providing liquidity is permissionless and funds are kept in a non custodial smart contract. On the contrary, providing liquidity to PMMs and Order Books is closed off and typically sourced from institutional capital. FMMs use a similar model to AMMs, making liquidity provision easy and accessible for all.

Ease of Integration

FMMs are designed to be composable like AMMs.

Can take in variable input and send variable output - does not need to necessarily rely on an exact transaction. Easily composable because they can send output to arbitrary addresses, similar to the PLP API specified by 0x.

Example of an FMM

The earliest example of an FMM is Clipper, a DEX for small trades.

In our recent post on the yield earned by Clipper LPs on Polygon we suggested that, despite massive disruptions in crypto prices since Clipper was launched on Polygon, Clipper Pool LPs have made extremely competitive returns of more than 30% annualized on a crypto basis, bracketing out the effects of market prices.

During the same time period, a roughly comparable Uniswap pool was down about 12% annualized because of impermanent loss tied to crypto price fluctuations.

We believe Clipper’s Polygon deployment has been able to avoid significant loss because it is a new kind of market maker, a Formula Market Maker (FMM), which combines the best qualities of an AMM and a PMM. We can think about the distinction between an AMM and a PMM along several dimensions. Clipper’s FMM is sometimes closer to a PMM, and but generally hews closer to an AMM.

FMMs are the Future

We believe FMMs will grow in popularity within DeFi and we’d like to see 0x create a standard integration to make adding them easier. FMMs combine the best qualities of AMMs and PMMs together while abstracting the shortfalls away. In short, here’s what FMMs offer:

  • Non discriminatory pricing like AMMs (offers same rates to all traders)
  • Ease of LPing
  • Update prices faster than AMMs to reduce loss from arbitrageurs (benefits both LPs and Traders)
  • Composable

Full Writeup on FMMs: What is a Formula Market Maker (FMM)?

Proposal

  1. 0x Team works with Shipyard Software team to spec out the architecture and engineering estimate for supporting FMMs.
  2. Based on the estimate, the 0x Foundation makes a grant to whomever is leading the development (ex: 0x Labs or Shipyard Software).
    [/quote]

IKE 6666666666 I LIKE

3 Likes

This integration will be helpful imo.

1 Like