Virtual Market Maker
What is the Virtual Market Maker (VMM)?
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 closed ecosystems, 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 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 provision is community-driven, meaning that users who contribute liquidity earn directly from market-making activities rather than allowing third parties to take a significant cut. This approach aligns with decentralized finance’s core principles—open access, fairness, and transparency.
Additionally, the VDEX team has prior experience in market making, and during the early phases, they have been seeding liquidity to ensure smooth price discovery. However, VMM is not designed as a mechanism for the team to profit from trading spreads. Instead, it is structured as an open vault where all participants share in the performance, bringing a higher standard of transparency and accessibility to perpetual trading.
How Does the Market Making Strategy Work?
At its core, VMM operates by dynamically adjusting orders around fair market prices, ensuring there is deep liquidity across all listed assets.
Here’s how it works: ✅ Fair Pricing – The strategy derives real-time price data from multiple sources, including on-chain order books and leading centralized exchanges, to determine accurate bid-ask levels. ✅ Automated Execution – VMM runs a mix of maker and taker strategies to provide 24/7 liquidity across trading pairs, ensuring minimal slippage and tight spreads. ✅ Transparency & On-Chain Visibility – While the strategy runs off-chain for efficiency, all VMM positions, orders, trade history, deposits, and withdrawals are fully auditable on-chain in real time.
As more external market makers enter the ecosystem, the vault's performance is expected to improve. Increased competition reduces VMM’s exposure to directional risk while enhancing trade execution efficiency.
Are There Risks to Consider?
Yes. Like any market-making strategy, VMM is exposed to market risk. The vault’s strategy aims to profit from spreads and trading inefficiencies, but there is no guarantee that it will always be profitable.
Key risks include: 🔹 Unprofitable Trades – Market conditions may shift rapidly, leading to temporary losses. 🔹 Volatility Risks – In highly volatile markets, spreads may widen unpredictably. 🔹 No Guaranteed Returns – Like Uniswap LPs or GLP participants, VMM depositors may experience drawdowns based on trading conditions.
Users should only deposit funds they are comfortable with and regularly track VMM’s historical performance through on-chain analytics.
How Can Users Participate?
Participating in VMM is simple. Users can deposit BTC, ETH, or USDC into the vault and earn returns based on trading profits. Deposits are subject to a brief lock-up period, after which users can withdraw both principal and earned profits in USDT (all settlements are in USDT to ensure stable, predictable returns).
Unlike traditional liquidity pools, VMM is not tokenized, meaning rewards are automatically compounded—users don’t need to claim rewards manually.
Conclusion
Market making is one of the most consistent ways to generate trading profits, but historically, these opportunities have been limited to institutional market makers and exchange operators. With VMM, liquidity provision is democratized, allowing anyone to participate in market making, earn a share of the profits, and contribute to a more liquid and fair trading environment.
As always, past performance is not indicative of future returns, and this is not financial advice. However, for those looking for a passive, transparent way to earn from perpetual trading, VMM is a key innovation that aligns liquidity incentives with community participation.
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