# Virtual Automated Market Maker

There is no order book in Ariel Protocol. It follows an AMM model in a virtual way. In conventional AMMs, assets are stored within the smart contract, and the exchange price for each asset is determined through a specific mathematical function. vAMMs in Ariel Protocol do not store any assets whatsoever. This means it does not utilize liquidity provided by liquidity providers.

Instead, the real assets are stored in a smart contract vault, denominated in UST, which becomes the collateral for users to open a leveraged position. The total amount of funds in the vault essentially forms the cap for traders’ profits.

Ariel uses vAMM for price discovery. It will have 2 types of algorithms (pools) each suitable for different kinds of pairs. The appropriate mathematical function for a particular asset pair would improve efficiency for the traders. Ariel allows the following two algorithms

**1. Constant Product Pools**

Constant Product pools were popularized by Uniswap. It is simple and caters to a large variety of assets. It has proven to be as effective as a centralized exchange. This algorithm is especially effective for assets with high volatility (e.g. Luna/UST) as it serves as a counterparty for all possible prices.

These pools function by maintaining their reserve balance as per the below equation

Rx x Ry = k

**2. Stablecoin Invariant Pools**

Stableswap pools were created by Curve Finance to make stable (1:1) exchanges more capital efficient. Take exchanges between USD stablecoins as an example. The slippage in these transactions has to be very low to have a 1:1 swap. Stablecoin Invariant Pools have the right balance of Constant Product and Constant Price elements which lower slippage for exchange rates close to 1:1.

The formula for these kind of pools is

4A(Rx + Ry) + D = 4AD + (D3/4(Rx x Ry))

You can refer to the Curve whitepaper for more details about this formula.

Last modified 1yr ago