👨‍🏫Detailed Explanation of BAMM Protocol

BAMM (Burned Automated Market Maker) protocol is an upgraded innovation

The BAMM (Burned Automated Market Maker) protocol is an upgraded innovation based on the traditional AMM (Automated Market Maker) protocol, combining token burning mechanisms, an independent front-loaded fixed fee system separate from the liquidity pool, and real-time fee collection. The BAMM protocol avoids excessive accumulation of tokens in the liquidity pool through dynamic burning and flexible fee distribution mechanisms, allowing liquidity providers (LP) to collect transaction fees in real-time without withdrawing from the liquidity pool, preventing further selling pressure on the market. This protocol enhances token scarcity, increases token prices, optimizes liquidity structure, and reduces trading costs.

Background

Traditional AMM protocols have the following issues:

• Excessive Token Accumulation: Excessive tokens accumulate in the liquidity pool, leading to price drops.

• Selling Pressure: LPs withdraw funds to collect fees, causing market selling pressure.

• High Trading Costs: Fees are charged proportionally; large holders incur high costs.

Core Functions

The BAMM protocol has the following three core features:

a) Dynamic Burning Mechanism: When the number of tokens in the liquidity pool exceeds 18% of the total circulating supply, automatic burning of sold tokens is triggered.

b) Fixed Fee Mechanism: Each transaction charges a fixed amount (0.1 USD, 1 USD, 10 USD) as a fee, calculated in advance and not included in the LP pool.

c) Instant Fee Distribution: Liquidity providers can collect transaction fees in real-time without withdrawing from the liquidity pool, avoiding selling pressure on the token price.

Liquidity Pool

The BAMM protocol's liquidity pool innovates on the traditional AMM constant product formula:

$$Px×Py=k$$

Where:

• Px and Py represent the quantities of token x and token in the liquidity pool, respectively.

• k is a constant.

During trading, the quantities of tokens in the liquidity pool are adjusted to maintain the constant product.

Burning Mechanism

In the BAMM protocol, the burning mechanism is designed to trigger token burning operations when the proportion of tokens in the liquidity pool exceeds 30% of the total circulating supply. The burning logic is as follows:

Burning Rules:

• When the proportion Tx of token x in the liquidity pool to its total circulating supply fx exceeds 30%:

$$fx= Px/Tx ≥0.30$$

Trigger burning.

• When a user sells tokens S :

If the number of tokens in the liquidity pool exceeds 18% (i.e., Px ≥ 0.30 ⋅ Tx), a portion of the sold

tokens will be burned until the token proportion in the liquidity pool returns to 30%.

Amount to Burn:

$$Sburn=min(S,Px-0.30⋅Tx)$$

Where:

• S: Number of tokens sold by the user

• Sburn​: Number of tokens to be burned

Effective Trading Volume:

$$Seffective=S-Sburn$$

The unburned portion participates in actual trading.

Fixed Fee Mechanism

Unlike the proportional fees in traditional AMM protocols, BAMM adopts a fixed fee model, charging a fixed amount for each transaction in advance. The fees have three tiers: 0.1 USD, 1 USD, or 10 USD, and are not included in the liquidity pool.

Transaction Fee Rules

• For each transaction, the fee F is charged in advance, not included in the LP pool, and fixed as one of: 0.1 USD, 1 USD, 10 USD

Instant Fee Distribution

A major innovation of the BAMM protocol is that liquidity providers (LP) can collect transaction fees in real-time without withdrawing from the liquidity pool. Each transaction's fee is automatically distributed proportionally to LP, avoiding market selling pressure caused by LP withdrawals and maintaining market price stability.

Fee Distribution

• For each transaction, the fee F is automatically and proportionally distributed to LPs based on their share of liquidity, available for immediate withdrawal without withdrawing funds from the pool.

Updates to Liquidity Pool and Total Circulating Supply

After triggering the burning mechanism, both the total circulating supply of tokens and the number of tokens in the liquidity pool will adjust accordingly:

• Update Tokens in the Pool:

$$Px'=Px-Seffective$$

• Update Total Circulating Supply:

$$Tx'=Tx-Sburn$$

BAMM Model Formulas

The core of the BAMM protocol lies in the burning and instant fee mechanisms. The main formulas in the model are as follows:

Trigger Burning Condition

When the proportion of tokens in the liquidity pool reaches or exceeds 30%, the burning mechanism is triggered:

$$fx= Px/Tx ≥0.30$$

Number of Tokens Burned

When the token proportion exceeds 30%, the number of tokens burned is:

$$Sburn=min(S,Px-0.30⋅Tx)$$

Actual Effective Trading Volume

After burning tokens, the actual trading volume participating in the trade is:

$$Seffective=S-Sburn$$

Update Token Quantity in Liquidity Pool

After the trade, the token quantity in the liquidity pool is updated:

$$Px'=Px-Seffective$$

Update Total Circulating Supply

After burning, the total circulating supply of tokens is updated:

$$Tx'=Tx-Sburn$$

Instant Fee Distribution

For each transaction, the fee F is automatically and proportionally distributed to LPs in real-time. LPs can withdraw their earnings at any time without withdrawing from the liquidity pool:

$$LPgain=(My LP)/(Total LP )×F$$

Advantages of the BAMM Protocol

Price Stability:

The burning mechanism controls token supply and stabilizes market prices.

Reduced Selling Pressure:

LPs do not need to withdraw funds to collect fees, reducing selling pressure.

Lower Trading Costs:

The fixed fee model allows users to know costs in advance.

Future Development of the BAMM Protocol

In the future, the BAMM protocol can further expand its application scenarios, such as extending the burning mechanism and fixed fees to more asset liquidity pools, supporting more complex decentralized finance application scenarios. Meanwhile, combining market conditions and user needs, BAMM can explore mechanisms for dynamically adjusting burning thresholds and fee tiers to better adapt to market changes, providing a new solution for the DeFi ecosystem and empowering DeFi to be great again!