Primary-market AMM
The Primary-market AMM (P-AMM): where Gyro Dollars are minted and redeemed against the reserve
The primary market (P-AMM) is where a user mints or redeems Gyro Dollars for other assets. It is where Gyro Dollars are created or destroyed. The secondary market (S-AMM) is where Gyro Dollars are traded against other assets.
The shape of the P-AMM in Gyroscope adapts to reserve ratio shocks. The following figures illustrate the redemption quotes offered by Gyroscope in comparison to a 50-50 Uniswap pool and when the reserve ratios are 100% and 80% respectively.
If Gyro Dollars deviates below peg when under-reserved due to a shock, it adapts the shape of the P-AMM to compensate. The redemption curve starts near $1 and aims to foster good liquidity around the peg, but with a built-in circuit breaker to stop heavy outflows from capsizing the reserve. At this circuit breaker, the redemption rate decreases below the actual reserve ratio, at which redemptions are always sustainable.
Provided Gyroscope is strong enough that stablecoin holders believe in the stablecoin long-term, waiting for the transitory downturn to pass is in the best interest of the stablecoin holder vs. running to the exit. Keep in mind that the scenario getting to this point would already be quite traumatic for other stablecoins. Of course, stablecoin holders might not choose to wait, in which case we move down the redemption curve. But in this case, Gyroscope provides rational reasons to bet on Gyro repegging soon as either outflows equilibrating back toward zero or the reserve recovering (e.g., through yield) leads to improved redemption prices and closer liquidity around the peg. This last point is illustrated in the following figure as the reserve ratio recovers from 80% to 90%.
The P-AMM design is fully specified, formally characterized, and optimized in our P-AMM technical paper, which will be released soon. See the white paper Sections 3.1 (minting curve) and 3.4 (redemption curve) for currently released details.
Last modified 4d ago
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