vAMM

The total volume of Virtual Funds does not always match the real fund of the Condition. When a player places a bet, the ratio of Virtual Funds changes. This self-adjusting pricing mechanism is Azuro’s vAMM.

Before calculating the odds on which the bet will be accepted, the Virtual Fund of the outcome i on which the bet is placed increases by the size of the bet:

F_{i}=F_{i}-a,\text{where } a \text{ is a bet amount. }

After the bet on outcome i has been accepted, the Virtual Fund of other outcomes changes as per Azuro’s vAMM formula:

F_{j \neq i}\mathrel{{-}{=}}\frac{(payout-a)*F_{j}}{sum(F)},\text{where } a \text{ is a bet amount. }

Azuro vAMMs allow independent betting flows to reprice a prediction market’s onchain odds on top of the Data Provider’s pushed sell-side odds, while still adhering to the Data Provider’s Virtual Fund specifications and constraints for that particular Condition (or prediction market).

As such, even with vAMMs, the overall loss for the Condition in the worst-case scenario cannot exceed the size of the Reinforcement allocated by the Data Provider when creating the Condition.

Virtual Funds Tokenomics