Virtual Market Maker

The Virtual Market Maker (VMM) is a decentralized liquidity vault designed to facilitate trading while giving liquidity providers (LPs) the opportunity to share in the trading profits. Instead of relying on external market makers, VMM allows the community to supply liquidity and collectively benefit from market-making activities.

Unlike traditional market makers who profit from spreads and fees in exclusive systems, VMM operates transparently and does not extract additional fees. Profits and losses are distributed proportionally among depositors based on their share of the vault, creating an open and fair trading environment.

Why is the Open Market Making Available to the Community?

Many decentralized exchanges struggle to sustain deep liquidity and often turn to predatory market-making firms that demand large profit shares or control over order flow. This creates a system where insiders extract value at the expense of regular traders.

With VMM, liquidity provisioning is community-driven, meaning users who contribute liquidity earn directly from market-making activities instead of third parties taking a significant share. This approach aligns with the core principles of decentralized finance: open access, fairness, and transparency.

Market Making Participation Overview

Philosophy

The Virtual Market Maker (VMM) is designed to support a liquid and efficient trading environment on VDEX. Its primary goal is to ensure tight spreads and adequate depth across all listed markets, benefiting all participants. While external market makers may provide additional liquidity, they directly compete with the VMM for volume. Their presence does not improve VMM performance; instead, it diversifies the sources of liquidity and reduces risk exposure for the VMM.

Strategy

The VMM operates as an automated liquidity provider on the decentralized limit order book (DLOB). It continuously posts both bid and ask orders across supported markets to facilitate trading. Its strategy focuses on:

• Maintaining competitive spreads to attract takers.

• Adjusting order sizes and prices dynamically based on market conditions.

• Managing inventory risk to ensure sustainable operations over time.

Revenue Generation

The VMM earns returns by capturing the bid-ask spread and earning rebates or fees from trades executed against its orders. Profitability depends on order flow, market volatility, and competition from other market makers.

Supported Collateral

Users providing capital to the VMM can contribute using supported assets such as WETH, WBTC, USDC, and USDT. Contributions are pooled and managed by the VMM strategy.

Risks

Participating in the VMM strategy involves several risks:

• Market Risk: Adverse price movements can cause losses to the pooled capital.

• Competition Risk: Increased competition from external market makers can reduce VMM's trade volume and profitability.

• Liquidity Risk: In periods of low activity, the VMM may struggle to capture spreads effectively.

User Participation

Interested participants can allocate funds to the VMM pool via the VDEX interface. Allocated funds are used to support the VMM's liquidity provisioning strategy. Contributions and withdrawals are subject to the platform's standard rules and conditions.