What is Dual Liquidity Pool Mechanism？

Fufuture introduces a decentralized liquidity mechanism named "Dual Liquidity Pool," which replaces the single liquidity pool of Automated Market Makers (AMM) with a combined model consisting of private and public liquidity pools. The Dual Liquidity Pool is a decentralized mechanism that merges both private and public liquidity pools. The former demands higher capital strength, quoting capability, and position management, typically catering to institutional market makers, while the latter is open to all users.

Orders are primarily executed through an on-chain random order matching algorithm, using oracle-fed prices and a specific private liquidity pool. Only when the private pool's liquidity is insufficient does the order shift to the public liquidity pool, which serves as a reserve pool. This innovative liquidity approach successfully addresses three major challenges associated with AMMs:

• Reduced Counterparty Risk

Each private liquidity pool consists of an independent wallet address, allowing for clear understanding of order details. This facilitates the calculation of position risk and the ability to hedge externally. As the private liquidity pool assumes most of the counterparty risk, the risk transferred to the public pool remains minimal. The public pool, being singular and open for anyone to provide liquidity, distributes both risk and reward, thus diminishing the counterparty risk borne by individual users.

• Deeper Market Depth

With prices sourced from oracles, the Dual Liquidity Pool model ensures both private and public pools contribute to market liquidity. The private pool boasts 5 times leverage (with a 20% margin rate) and the public pool offers 2.5 times leverage (with a 40% margin rate), effectively amplifying market depth and optimizing capital utilization.

• Reduced Impermanent Loss

Compared to AMMs, the price discrepancy between the oracle's feed and the market price is considerably smaller, leading to a significant reduction in impermanent losses resulting from arbitrage trades.