TiTi&Stablecoin Series III: New Stablecoin Algorithm——M-AMM & Reorders
M-AMM DeFinition：M-AMM is designed to mint TiTi, detect real time price change to dynamically adjust TiUSD supply, thus realizing price stability.
To begin with, let’s introduce the monopoly market maker mechanism in traditional market. The monopoly market maker is the market making mechanism adopted by the NYSE, the New York Stock Exchange specialist System. Only one professional market maker is allowed to make a market for a certain security. The purpose of the monopoly MM is reasonable. It can not only provide the necessary liquidity for the market, but also enable the market to always be rationally guided to avoid unnecessary panic.
See the picture from the right to the left:
✅TiUSD mint and redeem from M-AMM, detect Supply & Demand. If TiUSD price changes, M-AMM will adjust dynamically to realize stability.
On this footing, we designed and developed a decentralized on-chain monopoly market maker component to achieve a TiUSD primary market. This market maker always sells or buyback TiUSD at a mark price of $1. Everyone can use it. Their crypto assets permitted by the Protocol can be exchanged to TiUSD in M-AMM. This process can also be understood as the process of the mint and redemption of TiUSD.
✅ See Price chart left, the green color block above 1$ indicates that demand exceeds supply,so M-AMM will mint more TiUSD according the the amount calculated to achieve re-balance. Vice versa.
✅ Why we choose Monopoly AMM? Monopoly here means specialized. In the most straight idea, the market maker should have absolute control to mint and redeem right to reflect real market supply and demand, without being wrongly influenced.
✅ As a DeFi stablecoin, TiUSD will have secondary markets, their prices varies. A price spread between Primary market and Secondary market will be equalized by arbitragers. That enables M-AMM to get TiUSD global price in DeFi ecosystem.
In summary, M-AMM is the core module to mint and burn titi, detect TiUSD real time Supply & Demand, and dynamically adjust TiUSD supply with Reorders.
Reorders mechanism：Realize price stability via reshaping trading order book to give holders confidence in any cases by effectively and timely adjusting the transaction depth in LP Pool or (the market making liquidity).
Essentially, Reorders is one effective market making strategy built on M-AMM. It is designed to adjust market liquidity in TiTi Protocol. I just mentioned that the Protocol needs to ensure that TiUSD is always sold at a price higher than 1$, and TiUSD is bought back at a price lower than 1 dollar, so let’s first look at how M-AMM works in the traditional order book-based trading market.
The picture on the left shows the change of an order book. Take TiUSD/USDC M-AMM as an example. In the initial state, the Protocol provides a symmetrical order book based on $1. When the TiUSD Price is bought up, there is a gap in the order book in the selling direction. To be simple, M-AMM are selling TiUSD in the last market making cycle and obtaining a little bit more USDC than TiUSD minted. This part of TiUSD is transferred to users and becomes the market liquidity. Hence, the M-AMM judges that the market is in the expansion stage and the demand for TiUSD is increasing, so more TiUSD is mint, the depth of the sell order is increased, and the user’s trading slippage becomes smaller, which brings a better trading experience.
On the contrary, when the price of TiUSD is less than $1, it will leave a gap in the order book of the buying order. At this time, M-AMM buys back TiUSD with the accumulated USDC in the previous market-making cycle, and the market is in a contraction stage. The demand for TiUSD is getting smaller, so the Protocol withdraws a part of the sell order, burn this part of TiUSD, and reshapes the order book according to USDC left in M-AMM. That is how market price returns to $1.
We call the reshaping process of the order book the ReOrders mechanism, which is also the core reason why TiUSD can continue to maintain $1. Since TiUSD Protocol is a completely decentralized protocol, we have learned from the CFMM (constant product market making) to achieve make it possible. After each round of market making cycle, according to the above principles, readjust the number of TiUSD in the market making pool to achieve the same effect.
Reorder is very effective in keeping TiUSD pegging to 1$. What are the conditions reorders is triggered ?
In TiTi Protocol, we set three events for triggering ReOrders mechanism, including 🎈fixed time period trigger, 🎈fixed spread trigger, and 🎈MMF update operation trigger.
Through the ReOrders mechanism, we have achieved a very key effect, that is, the Protocol is always selling and buyback TiUSD according to the changes in the supply and demand relationship in the market. This gives users great confidence and guarantees that the stable efficiency is extremely high.
Compared with the rebase mechanism of other algorithmic stablecoins, the ReOrders mechanism is more elegant. It can ensure that the system will not affect other TiUSD in circulation during the process of adjusting the market supply, which greatly increases the easy of use of the system. Reduced cognitive costs.
To help you better understand Reorders and M-AMM. We extract two concepts, the PAV and PRV.
PRV is short for Protocol Reserve Value, PRV is 100% used to backed TiUSD mint as a nature of reserve.The original value of TiUSD is used to ensure that there will always be sufficient funds to buy back TiUSD from the market for $1 during the contraction phase of the Protocol.
PAV is short for Protocol Added Value. The most vivid explanation is that user pay a little bit tax or transaction fee when they choose to mint and redeem TiUSD in M-AMMs. The tax is perpetual, that is PAV. A part of fund in M-AMMs changed according user transaction, whether mint or redeem. Each reorder comes with the growth of PAV.
PAV is mainly used in three aspects,🏹a source of income for market-making funds,🏹reserve as a Rainy Day Fund to deal with the risks that may occur in the future.🏹 as a governance incentive for the Protocol, used to buyback our governance tokens. This is introduced in the governance chapter.
Here is an example to illustrate the allocation process.
🕵️♀️In buy or mint condition
Take Alice as an example, when Alice spends 10K USDC to exchange TiUSD in M-AMM, assuming that the relationship between the amount of USDC and TiUSD in the pool is 1:1, that is, the price is 1 USD. Due to the transaction slippage, Alice can only get 9999 TiUSDs.The Protocol received 10K USDC, 9999 USDC flow into PRV, used to buyback this part of the circulated TiUSDs, and the remaining 1 USD was allocated to PAV for future distribution.
🕵️♀️In Sell or redeem process
Correspondingly, when Alice sells 9999 TiUSD to M-AMM, she will get 9998 TiUSDs. The Protocol will use the 9999 USDC reserved in the previous PRV for payment, and assign 1USDC to the PAV, because the purpose of the previously reserved 9999 USDC is to ensure that the original value of the 9999 TiUSDs obtained by Alice is not less than the average price of 1 US dollar, so this part of the PRV can be released when the Protocol is to buyback this part of TiUSD. The process reflected in the ReOrders process is shown on the right side.
Through Reorders, mechanism, a very important effect is realized. The amount of TiUSD circulation is always equal to the PRV amount, and at the same time, it ensured that each time the Protocol readjusts the amount of circulation, the original value of other TiTi in circulation will not be affected. Compared with Ampl’s Rebase mechanism, this brings a better user experience to users, and at the same time it is more fair.
With M-AMM and Reorders, TiTi Protocol can maintain peg price with unprecendented methods. I will talk about multiple asset reserves in TiTi & Stablecoin Series IV: Multi-Asset Reserves — the future trend.
