GammaSwap

What is GammaSwap?

GammaSwap is a novel DeFi primitive built to scale liquidity in Automated Market Makers (AMMs) by providing better risk adjusted returns to Liquidity Providers (LPs).  It is well known that LPs in AMMs face the risk of Impermanent Loss (IL), a loss that occurs when the value of the underlying tokens in a pool changes. This is caused by market volatility.  Traditionally, liquidity providers take on IL risk but are paid in swap fees from volume. Volatility may be correlated with volume but they are not equal. Research show that volume from swap fees often do not compensate retail LPs adequately for their risk. This is an inefficiency hindering the growth of DeFi.

GammaSwap aims to solve this inefficiency by creating a two sided market for volatility risk. Traders can borrow liquidity from the AMM and get leveraged exposure to any asset without relying on an oracle. Borrowers short IL to profit off Impermanent Gain (IG).

Earning fees from borrowers drives more efficient yields. In periods of higher volatility (more IL), utilization should be higher reflecting in higher fees for LPs.