Behold, an Infinite Jest style explainer on Drift Protocol v1.

<aside> 📚 Prerequisites/Useful Links: vAMM

• A Deep Dive into our Virtual AMM (vAMM) - Perpetual Protocol
• On vAMM's Unnecessity for Liquidity Pool - Qmeasure
• vAMM Terminology - Drift Protocol

Perpetual Swaps

• Derivatives Trading/Exchange Terminology - Drift Protocol
• Funding Rates/Capped Symmetric Funding - Drift Protocol

</aside>

• Table of Contents

1 - dAMM Introduction

What is Drift?

Drift Protocol is a decentralized exchange for derivatives on Solana. The primary market currently served is perpetual swaps (SOL/BTC/ETH/LUNA/AVAX/BNB/MATIC) quoted in USDC.

How is it different from other perpetual DEXs?

Drift uses a vAMM (virtual Automated Market Maker). Moreover, it's the first completely configurable vAMM (hence, dynamic vAMM or dAMM). It is configured by the:

• Peg: a price multiplier

• k: representing liquidity depth

• Fee pool: comprised of taker fee amounts (multiple methods for fee discounts to be implemented in the future)

• Traunches: percentage allocations from the fee pool to be distributed amongst the following operations:

  • Adjusting Peg (alternatively, "repeg")
  • k adjustments
  • (Capped) funding payments

  

  Traders pay the fee pool; the fee pool balance can be increased/decreased via the operations above

  

Given that the dAMM is configurable, it aims to optimally allocate the fee pool to incentivize more and more volume. After extensive research and testing, the goal is for the entire process to be systematized and transparent.

Why would anyone want to trade on a vAMM?

1. A vAMM is a designated market maker on chain (a maker that must never pull liquidity).