Behold, an Infinite Jest style explainer on Drift Protocol v1.
<aside> 📚 Prerequisites/Useful Links: vAMM
Drift Protocol is a decentralized exchange for derivatives on Solana. The primary market currently served is perpetual swaps (SOL/BTC/ETH/LUNA/AVAX/BNB/MATIC) quoted in USDC.
Drift uses a vAMM (virtual Automated Market Maker). Moreover, it's the first completely configurable vAMM (hence, dynamic vAMM or dAMM). It is configured by the:
Peg: a price multiplier
k: representing liquidity depth
Fee pool: comprised of taker fee amounts (multiple methods for fee discounts to be implemented in the future)
Traunches: percentage allocations from the fee pool to be distributed amongst the following operations:
Traders pay the fee pool; the fee pool balance can be increased/decreased via the operations above
Given that the dAMM is configurable, it aims to optimally allocate the fee pool to incentivize more and more volume. After extensive research and testing, the goal is for the entire process to be systematized and transparent.