Overview
Last updated
Last updated
Pumpbit employs its innovative Zero Sum Position AMM (ZSPM) algorithm to successfully overcome the centralization challenges of dYdX and the capital efficiency issues of GMX. This breakthrough technology provides users an experience similar to centralized exchanges, featuring higher leverage ratios, superior capital efficiency, lower transaction fees, and minimal price slippage.
The Pumpbit team has developed the ZSPM algorithm, which integrates the advantages of the Orderbook model, exemplified by dYdX, and the AMM model led by GMX. It effectively addresses dYdX’s dependency on market makers and the centralization issues of Orderbooks, as well as GMX’s capital inefficiency and trading capacity limitations.
The team at Pumpbit possesses extensive practical experience and a profound understanding of various aspects of cryptocurrency trading. We bring our successful past experiences to Bitcoin, enhancing the Bitcoin ecosystem and providing Bitcoin users with an exceptional trading experience.
GMX, a trailblazer in the field of decentralized perpetual contract trading, has introduced a novel approach, following in the footsteps of dYdX. Despite significantly boosting liquidity for decentralized perpetual contracts, even after the v2 update, GMX’s AMM model fell short of enhancing capital efficiency and leverage ratios. This was primarily due to the use of liquidity pools, a feature unique to GMX’s AMM model, which imposed restrictions on both capital efficiency and leverage ratios.
GMX prioritizes providing liquidity for traders, where the counterparty to all trades is the entire liquidity pool, resulting in the maximum open position being equal to the depth of the liquidity pool. On the other hand, Merlin Futures prioritizes maintaining a position balance rate and only utilizes the liquidity pool to create counterparties when the position balance rate is non-zero. Thus, the maximum open position equals the liquidity pool depth multiplied by the leverage ratio (at max 200x).
Contrasting with GMX’s AMM model, Merlin Futures’ ZSPM model brings a new level of excitement to the table. It significantly boosts the leverage ratio (up to 200x) and enhances the carrying capacity of open positions in the liquidity pool (at most 200 times that of GMX), thereby liberating the limitations on capital efficiency and leverage ratios.
The price on dYdX is entirely determined by the market. Hence, market makers and traders bear significant responsibility for pricing. The shallower the Orderbook depth, the larger the price slippage. On GMX, trading prices are determined by Oracles and AMMs. As Oracles are involved in setting prices, there is less slippage during large transactions. When prices on GMX deviate from the real market prices, they passively wait for liquidity providers to buy or sell long or short tokens, allowing the prices to gradually return to their true levels. This mechanism does not allow for immediate adjustments to real market price changes, making price manipulation by Oracles possible, especially when liquidity is low.
In Pumpbit, trading prices are determined by the liquidity pool balance rate, which is directly related to the current holdings of long and short positions. When long positions exceed short ones, the price = (1 + balance rate) x real price will be slightly higher than the real price, and vice versa. Pumpbit actively adjusts its prices based on the real market prices using a method similar to Curve Finance v2. It allows it to immediately respond to real price changes while maintaining the smaller slippage characteristic of the AMM model and sensitivity to real prices.
GMX uses long or short tokens to participate in pricing, whereas Pumpbit uses the positions of longs or shorts for pricing. Unlike liquidity providers, perpetual contract traders are more sensitive and responsive to the market, allowing Pumpbit to maintain a smaller slippage while being sensitive to the real market prices.
[1] “Price = (1 + balance rate) * real price” is not an actual formula, but it provides for quick understanding. For accurate calculations, refer to the white paper.
1) Decentralized Market Makers
dYdX operates using an orderbook model, necessitating adequate trading counterparts. To ensure efficient trading, it partners with centralized market makers. However, with few market makers, they might control pricing and potentially manipulate the market, leading to targeted liquidations.
Pumpbit, on the other hand, takes a different approach to address market maker centralization. It leverages liquidity pools, a novel solution that sets it apart from GMX, which only provides liquidity to traders. By creating trading counterparts through these pools, Pumpbit can support significantly more open positions with the same liquidity level, offering a more attractive proposition to liquidity providers.
2) Fully On-chain Orderbook
Due to Ethereum’s low performance, dYdX couldn’t migrate its order book to the blockchain, maintaining the same architecture with the order book on centralized AWS servers and only the transactions on-chain from v1 to v3. In its v4 version, dYdX attempted to address Orderbook centralization by creating its blockchain, yet over 90% of transactions still occur on v3. Even if transaction volume on v4 eventually exceeds v3, the dYdX Chain, being specific to dYdX, could roll back transactions in case of unforeseen issues.
Pumpbit, a product of the Layer 2 expansion era, boasts a fully decentralized architecture that adheres to blockchain principles. It not only provides liquidity and creates trading counterparts through liquidity pools but also harnesses the power of Merlin Chain’s ZK-Rollup technology. This advanced technology ensures faster and more cost-effective trading, a testament to the platform’s commitment to innovation and user satisfaction.
The ZSPM algorithm developed by Pumpbit integrates the advantages of the Orderbook model while overcoming the limitations of the AMM model. This innovation offers a trading experience akin to centralized exchanges for decentralized perpetual contract exchanges and addresses the issue of needing pre-deposited funds in traditional decentralized exchanges. This enhancement improves the trading experience and brings higher leverage ratios, better capital efficiency, lower transaction fees, and reduced slippage.
Pumpbit strongly emphasizes long-term contributors and supporters, issuing Cofounding NFTs to enable them to grow alongside Pumpbit. Holders of Cofounding NFTs can earn platform tokens and platform revenues and enjoy Cofounding Airdrop privileges. Pumpbit plans to launch the NFT Mint and IDO in Q3 2024. The value of Pumpbit Cofounding NFTs will be directly proportional to Pumpbit’ trading volume. The ZSPM has significantly optimized capital efficiency, supporting at least 15 times the trading volume of GMX, helping Pumpbit accelerate the development of Bitcoin and fully surpass Ethereum ecosystem.
