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Introduction 👋

An overview of the GammaSwap Protocol
The Trade Page

What is GammaSwap?

GammaSwap is a novel DeFi primitive built to scale liquidity in Automated Market Makers (AMMs) by providing better risk adjusted returns to Liquidity Providers (LPs). It is well known that Liquidity Providers in AMMs face the risk of Impermanent Loss, a loss that occurs when the value of the underlying tokens in a pool changes. This is caused by market volatility. Liquidity providers take on Impermanent Loss (IL) risk and are paid in swap fees from volume. Volatility may be correlated with volume but they are not equal. Historical returns show that volume from swap fees often do not compensate LPs adequately for their risk.
This is an inefficiency hindering the growth of DeFi.
GammaSwap aims to solve this inefficiency by creating a two sided market for volatility risk. Traders can borrow liquidity from the AMM and get leveraged exposure to any asset without relying on an oracle. They take the opposite position of a Liquidity Provider and have the opportunity to turn Impermanent Loss into Impermanent Gain.
Borrowers can use GammaSwap to speculate on volatility directionally or through a straddle. The protocol can also be used to hedge asset exposure on the long tail - for AMM LPs and spot traders.

How are Liquidity Providers better off using GammaSwap?

Liquidity providers benefit because they earn additional fees from borrowers along with the swap fees. The yield LPs earn will always be equal to or higher than the vanilla AMM excluding token incentives.
In periods of higher volatility, when LPs experience more IL, they should earn more fees from borrowers. An LP's fee revenue will now directly scale with their volatility risk. It doesn't mean they will always be profitable, however, but they should be better off than a traditional AMM. GammaSwap is also a solution to Loss Versus Rebalancing (LVR) as it compensates LPs for their volatility risk with continuous fees over time based on a dynamic utilization rate. You can learn more about GammaSwap in our overview article here.

Protocol Core Values

1. Permissionless

GammaSwap is pioneering permissionless leverage. Anyone can create a pool with two tokens and as soon as the liquidity pool is live use GammaSwap to hedge their exposure or speculate on volatility. There are no limitations to the possibilities.

2. Decentralized

The protocol is decentralized, transparent and non custodial. Instead of centralized authorities controlling decision making, the protocol is governed by smart contracts on the blockchain where anyone can see the history of transactions and how the protocol operates. Users will always have full ownership of their assets at all times.

3. Retail Friendly

To expand DeFi to the masses, user interfaces and mechanisms need to be friendly to retail consumers. GammaSwap is focused on building intuitive products that anyone can access easily. The goal is to widen participation in DeFi and crypto. GammaSwap is contributing to this mission by democratizing market making to the masses.

4. Immutable

GammaSwap smart contracts are non-upgradeable. This means once GammaSwap is deployed no change is possible on the contract code. Anyone can interact with the contract in perpetuity and trust in the security of the contracts should increase over time due to the Lindy Effect.

The GammaSwap dApp

The Earn Page
The GammaSwap dApp is live on Arbitrum. Users can connect their wallets to trade perpetuals or provide liquidity. The docs explain everything related to using the GammaSwap platform and how to make the most of the protocol.
The app consists of three pages:
  • Trade - the trading interface for trading perpetual volatility positions from the AMM pool
  • Earn - the liquidity provider interface, where LPs can add liquidity to GammaSwap wrapped pools
  • Portfolio - once you have added liquidity or opened a trade position, your positions will appear here

Liquidity Providers

Borrowers