What is DLAMM
DLAMM stands for Discretized-Liquidity-AMM, a new automated market maker (AMM) model that allows liquidity providers (LPs) to concentrate their liquidity at specific price points instead of spreading it across a continuous price curve.
LPs can achieve higher capital efficiency and earn more fees by providing liquidity to the most traded price ranges. Traders can also benefit from lower slippage and more accurate prices when swapping tokens.
DLAMM was proposed by iZUMi Finance, a decentralized finance (DeFi) platform that launched its own DEX, iZiSwap, in May 2022. iZiSwap uses a mathematical formula to discretize a continuous price curve into a finite number of price points and only allows LPs to provide liquidity and traders to trade at these points. The market price will only be at one of these points, and the trade price will remain constant until the liquidity runs out. Then the market price will move to the adjacent point and repeat the process.
DLAMM is similar to the order book model used by centralized exchanges but without a centralized trade aggregation engine. The DLAMM design enables on-chain limit orders, which allow traders to specify the price and amount of tokens they want to buy or sell.
DLAMM is one of the future trends of DEXes, as it improves upon the constant product AMM model used by Uniswap and others. Uniswap v3 introduced concentrated liquidity, which allows LPs to provide liquidity within a custom price range. DLAMM upgrades Uniswap v3 by using discrete price points instead of custom ranges. DLAMM also allows limit orders, which are not possible on Uniswap v3.
In summary, DLAMM is a new AMM model that combines the advantages of order-book and AMM models and offers high capital efficiency, low slippage, accurate prices, limit orders, and low gas costs for users.
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