← Back to portfolio

Achieving True Incentive Alignment in Market Making: rAMM's Novelty Explained

Published on

Most people ought to realize that any organization in the blockchain realm functions like any other business. One of the keys to business success rests with vertical incentive alignment. This focuses on designing the vertical relationships in the value chain such that each player's incentives are aligned with the business's best interests, i.e., dAMM Finance.

The players, in this case, are the Market Makers and Token Issuers; these two should have dAMM's best interests at heart by virtue of the structural relationship in the organization's market-making docket, rAMM. We built rAMM on top of the dAMM protocol to give Market Makers and Token Issuers a central avenue to transact seamlessly to simplify the dedicated market-making process.

One way that rAMM achieves this is through market-making customized to meet each user’s needs.

The Need for Market Making that is Customized to each User's Needs

Customization involves delivering market-making tools and services modified to satisfy a specific customer's needs. This process combines the flexibility and personalization of custom-made products with rAMM's market-making architecture to give Market Makers and Token Issuers a competitive advantage over users in other organizations that only offer generic market-making tools and services.

I’d rather stand out from the crowd than be part of the crowd!

The goal here is to put a tool to develop sophisticated and highly customizable trading strategies directly into the hands of end users. Rather than dealing with the pre-defined curves of traditional market making, users get to work with specified and narrower process ranges. As a trader, you need to set multiple limit orders at custom price ranges, but you cannot achieve this with traditional market-making tools. rAMM capitalizes on the unique design features of dAMM Finance, such as allowing traders to set limit orders for an unlimited time and an unlimited amount.

Since rAMM is in its inception stages, by bringing an aspect of customization to market making, the larger dAMM technical team can delay the step of product differentiation and not focus a lot on what makes the service offered unique since the end users can make these decisions to meet their needs better. Not only is customization advantageous to the consumers, it is beneficial to dAMM Finance - so long as rAMM does not compromise on the quality of market-making services offered, it allows dAMM and its investors to increase sales, profits, and brand loyalty for this one-of-a-kind products.

Achieving Long-term Partnerships and Alignment at every Stage of Growth

Truth be told, successful partnerships and alignment doesn't just happen.

rAMM views both Market Makers and Token Issuers as strategic partners of the organization. These two players remain independent in the market-making process, share benefits from risks in control over joint actions, and contribute to the organization's growth. None can be called a rAMM partner if their goals align with the business values. To attain longevity, our strategy is as follows:

  • Having a market maker score helps us verify and validate the MM's performance.
  • We have transparent pricing that each party can review and make a decision on before continuing.
  • Token issuers are vetted before they provide an RFMM (Request for Market Maker) bid. This helps us ensure that the tokens are coming from the supported chains. Currently, rAMM supports tokens issued in these chains - Ethereum Mainnet, Arbitrum, Polygon, Binance Smart Chain, Avalanche, Optimism, MoonBeam, Aurora, BeraChain (thoon), Cosmos, and Fantom.

rAMM's Underlying Architecture

rAMM is a marketplace for new protocols and market makers to manage and negotiate market-making deals transparently. Behind the scenes, we have monthly market maker reports that keep track of their performance, with everything getting verified on-chain. The rAMM pool is also found within this marketplace for token issuers to deposit their tokens then the approved and best-performing market maker can provide them with a loan in return.

[Insert Infographic here showing this process]

We have other market makers within the blockchain realm, but several drawbacks exist that rAMM’s architecture solves:

  • Aggregated Monthly Reporting on Volume, Spreads, Uptime, Size & Depth, etc.
  • Multiple MMs through a single pool
  • Dedicated Market Making (DMM) services from all the major MMs in crypto
  • Streamlined terms where you no longer have to negotiate bespoke agreements with individual MMs

Final Note

Market making is no easy process, and for all end users to get the products and services they desire, they, too, should be involved in the planning and strategizing phases. dAMM will have to periodically study the market-making business environment since any slight change in business conditions may alter the alignment of incentives. By conducting incentive audits whenever we update rAMM, we can verify that the incentives offered to the users are consistent with the performance metrics laid out.

Many organizations are uncomfortable discussing how incentive alignment influences their decisions, but not rAMM or dAMM. We want to start the incentive alignment conversation so that Market Makers and Token Issuers can work in a transparent business environment. What are we doing wrong? What custom features could meet your needs on rAMM? Would you like us to go a notch higher? After all, talking about something is more than half the battle.

Stay tuned for more on rAMM on our socials:

Website | Discord | Twitter | LinkedIn | Medium | Documentation