Hi, BFX team member here
The vault is a Dynamic Market Maker (DMM) on our exchange that runs a high-frequency market making strategy to provide liquidity to traders on the exchange. Anyone can provide liquidity for the vault and share in the pnl and fee rebates. You can think of the DMM as a democratised high-frequency market maker where anyone can become a HFT market maker without any knowledge of trading.
Are there any risks to be aware of?
As the DMM is a market maker on BFX, the primary risk of the strategy could take on losing trades. Like with HLP, GLP or Uniswap pools, there is no guarantee that vault counterparties lose money in aggregate. Though its actions are transparent, the future performance of the DMM is always uncertain, and depositors should not risk more than they are comfortable losing.
This is how it works:
The BFX DMM aggregates real-time bid/ask prices from numerous top centralised, decentralised exchanges and oracles to update the price levels of the DMM strategy with millisecond accuracy.
The strategy calculates a fair price based on real time tick data from CEX and DEXs. The vault places bids and offers on the exchange around this theoretical fair price by running making and taking strategies with the goal of profitably providing 24/7 liquidity on all assets on the exchange.
Prices and quote sizes are adjusted algorithmically every millisecond based on the inventory skew of the DMM. i.e. if the DMM is long, it will reduce its bid size and increase its offer size. Bids and offers price width are also dynamically adjusted based on 10 second, 1 minute and 5 minute rolling window volatility.
Disclaimer
Please be aware that participation in the Blast Futures Exchange DMM Vault carries inherent risks, including but not limited to counterparty risks, price risks, and index risks. By participating in the DMM Vault, you acknowledge and accept these risks and agree that you are solely responsible for any decisions you make in connection with the Vault.
Counterparty risks: The DMM is providing liquidity, and is counterparty to traders. If traders trading against your DMM orders makes a profit, that will come from the value of the DMM vault.
Price risks: The value of the assets in the Blast Futures Exchange DMM Vault is subject to market fluctuations and may experience significant volatility. While our index-based price adjustment mechanism aims to reduce impermanent loss, we cannot guarantee the protection against all price-related risks. By participating in the Blast Futures Exchange DMM Vault, you accept the possibility of fluctuations in asset values and the potential for losses due to price volatility.
Index risks: The Blast Futures Exchange DMM Vault relies on an external index to adjust asset prices within the pool. This index may be subject to inaccuracies, manipulation, or other issues that could impact the performance of the Vault. We cannot guarantee the accuracy or reliability of the index, and any issues with the index may result in adverse consequences for the Vault and its participants. By using the Blast Futures Exchange DMM Vault, you acknowledge the potential risks associated with the index and agree that we are not responsible for any losses or damages resulting from index-related issues.
Smart contract risks: As with any blockchain-based platform, the DMM Vault is governed by smart contracts. These contracts may contain vulnerabilities or bugs that could potentially lead to loss of funds or other issues. However, our team has conducted rigorous audits and thorough testing to mitigate this risk as much as possible.
