Synthetic AMM

The AMM allows traders to buy & sell Impermanent Gain Options before maturity.
The AMM is called "Synthetic" because it uses the liquidity of the Earn Vault—no AMM-specific liquidity is needed.
It ensures traders can trade without any negative impact on either the protocol balance or the Earn Vault payoff.
The AMM achieves it by:
  • determining the correct price to trade Impermanent Gain Options.
  • correctly re-balancing the liquidity of the Earn Vault every time a trade happens (Delta Hedging).
As regards the AMM pricing:
  • Pricing is based on Black & Scholes-derived formula.
  • Risk Free data is taken from the Smilee Free Risk Oracle.
  • Implied Volatility data is taken from the Smilee Volatility Oracle.
  • The AMM bonding curve adjusts Implied Volatility based on time & utilization.
The Bid-Ask spread generated by the AMM Bonding Curve is paid to the Earn Vaults
The Synthetic AMM is just a conceptual component implemented at the smart contract level within the mathematics of DVPs & Vaults.