DYNAMIC LIQUIDITY ADJUSTMENT

A big challenge for virtual AMM is to decide the liquidity value. If the liquidity value is high, it has the benefit of lower trade slippage, but the high value also means it takes a large trade amount to move the price. Also, it is not a good idea to use constant liquidity forever with the growth of the exchange. Is there a way to dynamically update the liquidity based on some parameters? In practice, the liquidity of an exchange is highly correlated with open interest and trading volume. That’s why FEDIX FINANCE is making use of these two parameters to dynamically update the liquidity based on the following logic:

1. 1.If short term TWAP open interest is higher than long term TWAP open interest(indicating the growing trend of open interest), the liquidity will be adjusted higher, and vice versa.

2. 2.If today’s trading volume is higher than the previous day’s trading volume beyond a certain threshold, the liquidity will be adjusted higher, and vice versa.

The daily limit is applied for liquidity change amounts to protect the exchange from possible bad actors.