MM Pool & Order Book
Market making is a crucial function in Jungle Exchange where a market maker, typically a liquidity pool, provides liquidity by quoting both buy and sell prices for underlying assets, like stocks or crypto currencies. These prices, known as bid (buy) and ask (sell) prices, create a market for that asset.
Perpetual traders benefit from market making because it ensures there's a continuous flow of buying and selling opportunities. Market makers profit from the bid-ask spread—the difference between the buying and selling prices—while minimizing the spread's width to attract more traders. They manage this by constantly adjusting pool strategy based on market conditions, supply, demand, and their risk assessment.
By providing liquidity, market makers reduce the gap between supply and demand, allowing traders to execute transactions more easily and at competitive prices. This process enhances market efficiency, encourages trading activity, and helps maintain a fair and orderly market.
Market Maker Pool
Market Maker Pools serve as intermediaries for market makers to provide liquidity. Market makers supply funds and establish Market Maker Pools based on their strategies. During the market operation, Market Maker Pools replace traditional market makers and liquidity pools, conducting relevant opening and closing trades according to the strategy. You can also understand MM Pools as a set of quantitative strategies. However, these strategies do not determine when to actively initiate trades but decides when to passively undertake trades.
We define the relationship between MM Pools and traders as a game, a description of strategic interaction in game theory that includes the constraints on the actions that the players can take and the players’ interests, with MM pools holding a price advantage. This comes from the price spread set by the strategy. The spread refers to the difference between the bid and ask prices provided by the MM pool for long and short positions, and the fair price provided by the oracle, determined by the market maker when creating the MM pool. Once traders open a position, the execution price will lean towards the market makers.
Similarly, there is a game between market makers. When a trader requests a quote for a trade, Jungle’s Order Matching Engine matches it with the pool offering the best price available in the market and executes the transaction. If a pool owner sets a large spread for the MM pool, making its price non-competitive, it's likely that the pool won't attract many traders. Such settings result in no profit or market-making incentives for market makers in that aent pool. Conversely, if a pool owner sets a smaller or even no spread - quoting the oracle price, the amount of orders matched with traders would be the market maker’s personal priority in her/his market making strategy. However, this could lead to higher opening costs for positions and increased risks.
Fusion Mode with Order Book
With the development of blockchain infrastructure, including Layer2 solutions, it is now possible to achieve low-cost, high-speed market making with an order book on-chain. Hence Jungle Exchange introduces ‘Fusion Mode’ innovatively with advanced product features: Improved Trading Opportunities: support market making with an order book Enhanced Liquidity: collaborate with experienced market makers in the industry Optimized Capital Efficiency: utilize liquidity from both Market Maker Pools and the Order Book
By integrating the order book, users will have access to real-time buy and sell orders, providing transparency and facilitating informed trading decisions. With the expertise of experienced market makers and the integration of the order book, Jungle aims to become a leading exchange in the blockchain ecosystem, providing a seamless and robust trading experience for traders and market makers alike.