{"id":3308,"date":"2025-03-17T07:43:40","date_gmt":"2025-03-17T07:43:40","guid":{"rendered":"https:\/\/tde.fi\/founder-resource\/"},"modified":"2025-03-17T07:43:40","modified_gmt":"2025-03-17T07:43:40","slug":"introducing-borrowing-amm-model","status":"publish","type":"post","link":"https:\/\/tde.fi\/founder-resource\/blogs\/tokenomics\/introducing-borrowing-amm-model\/","title":{"rendered":"Introducing: Borrowing AMM Model"},"content":{"rendered":"\n

Decentralized Finance (DeFi) has come a long way, but there\u2019s always room for innovation\u2014especially around capital efficiency, permissionless lending, and reducing reliance on external oracles. Enter BAMM<\/strong><\/a> (Borrow Automated Market Maker), a novel protocol that merges AMM swapping and lending into a single, seamless system.<\/p>\n\n\n\n

Below, we\u2019ll take a closer look at how BAMM works, why it\u2019s different from traditional protocols, and what it means for DeFi users\u2014both lenders and borrowers.<\/p>\n\n\n\n

What Is BAMM?<\/strong><\/h2>\n\n\n\n

BAMM is built on top of Fraxswap<\/strong>, combining the functionalities of a decentralized exchange (DEX) and a lending platform. It allows users to borrow<\/strong> tokens directly<\/strong> from the same liquidity that powers swaps. In other words, instead of having a stand-alone lending protocol that pulls price data from external oracles, BAMM is self-contained<\/em> within its own Automated Market Maker (AMM).<\/p>\n\n\n\n

It\u2019s designed to be capital efficient<\/strong>: Liquidity Providers (LPs) in BAMM pools earn swap fees<\/strong> plus<\/em> interest<\/strong> from borrowers, ensuring that their capital is always actively working. At the same time, borrowers can access up to 3\u00d7 leverage<\/strong> on various token pairs without relying on an external price feed.<\/p>\n\n\n\n

The Problem with Traditional AMMs and Lending<\/strong><\/h2>\n\n\n\n
    \n
  1. Idle Liquidity<\/strong>
    <\/strong>In traditional AMMs, a large portion of the liquidity can sit idle when there aren\u2019t enough swaps. This reduces the effective yield for LPs, who only earn from sporadic trading fees.<\/li>\n\n\n\n
  2. Oracle Reliance<\/strong>
    <\/strong>Most lending protocols (like Aave or Compound) use external oracles to track asset prices. While this is often effective for blue-chip assets, it can be risky<\/strong> if oracles are manipulated or fail\u2014particularly for long-tail tokens<\/strong> or memecoins, which may lack robust oracle feeds.<\/li>\n\n\n\n
  3. Sudden Liquidations<\/strong>
    <\/strong>In oracle-based systems, your collateral value is calculated externally. If the feed updates and shows that your collateral\u2019s price has dropped below a threshold, you can be instantly liquidated<\/strong>, sometimes at a discount. This can lead to cascading liquidations in volatile markets.<\/li>\n<\/ol>\n\n\n\n

    How BAMM Works<\/strong><\/h2>\n\n\n\n
      \n
    1. Constant Product Formula<\/strong>
      <\/strong>Like many popular DEXs, BAMM uses the formula:
      X\u00d7Y=kX\u00d7Y=k
      where XX and YY are the token reserves. This built-in<\/em> price mechanism serves as the reference for both swaps and<\/em>borrowing. No external oracle is required.<\/li>\n\n\n\n
    2. Borrowers \u201cRent\u201d Liquidity<\/strong>
      <\/strong>Borrowers put up collateral using the same tokens<\/strong> that are in the BAMM pool. This lets them \u201crent\u201d part of the liquidity and open leveraged positions<\/strong>\u2014up to ~3\u00d7. Because the borrowed assets and the collateral exist under the same AMM framework, both change in value along the same price curve.<\/strong><\/li>\n\n\n\n
    3. Minimized Liquidation Risk<\/strong>
      <\/strong>Since everything is priced internally, there aren\u2019t any sudden external price updates<\/strong>. If the AMM price shifts, a borrower\u2019s debt and collateral shift together. This removes the need for abrupt, oracle-based liquidations.<\/li>\n\n\n\n
    4. Interest Rate = Pool Utilization<\/strong>
      <\/strong>LPs earn interest that depends on how much<\/strong> of the pool\u2019s liquidity is borrowed. That means higher utilization = higher rates for LPs, on top of<\/em> normal swap fees.<\/li>\n<\/ol>\n\n\n\n

      Benefits for Lenders & Borrowers<\/strong><\/h2>\n\n\n\n
        \n
      1. Lenders \/ Liquidity Providers<\/strong>\n
          \n
        • Higher Yield<\/strong>: They earn both<\/em> swap fees and<\/em> interest from borrowers, eliminating idle capital.<\/li>\n\n\n\n
        • Lower Risk of Bad Debt<\/strong>: The protocol design means the borrowers\u2019 collateral always moves in sync with their borrowed amount, reducing the chance of under-collateralization.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
        • Borrowers<\/strong>\n
            \n
          • Permissionless Leverage<\/strong>: Borrow any token pair available in the pool, including long-tail tokens<\/strong> or memecoins.<\/li>\n\n\n\n
          • No Oracle Liquidations<\/strong>: No abrupt margin calls triggered by external price feeds.<\/li>\n\n\n\n
          • Easy 3\u00d7 Leverage<\/strong>: Boost positions seamlessly without bridging to another protocol.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n

            Key Differences vs. Traditional Protocols<\/strong><\/h2>\n\n\n\n
              \n
            • No External Oracles<\/strong>: Eliminates a major point of failure and potential manipulation.<\/li>\n\n\n\n
            • All-in-One DEX + Lending<\/strong>: Capital efficiency soars by putting idle liquidity to work.<\/li>\n\n\n\n
            • Constant-Product Risk Model<\/strong>: Built-in price discovery ensures borrowers can\u2019t exceed a safe borrowing limit.<\/li>\n\n\n\n
            • Fewer Liquidation Shocks<\/strong>: Collateral and debt are in sync along the same AMM curve.<\/li>\n<\/ul>\n\n\n\n

              Final Thoughts<\/strong><\/h2>\n\n\n\n

              BAMM\u2019s novel approach to combining AMMs and lending could spark a DeFi renaissance<\/strong>, enhancing yield for LPs and granting new leverage opportunities for borrowers. By reducing dependence on external oracles and offering a more self-contained<\/strong> environment, BAMM addresses many pitfalls in existing DeFi markets.<\/p>\n\n\n\n

              If you\u2019re looking to explore more efficient ways to swap, lend, and earn, keep an eye on BAMM and Fraxtal Chain<\/strong>. This might just be the upgrade that DeFi<\/strong> has been waiting for.<\/p>\n","protected":false},"excerpt":{"rendered":"

              Decentralized Finance (DeFi) has come a long way, but there\u2019s always room for innovation\u2014especially around capital efficiency, permissionless lending, and reducing reliance on external oracles….<\/p>\n","protected":false},"author":1,"featured_media":3310,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,199,141],"tags":[126],"class_list":["post-3308","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blogs","category-defi","category-tokenomics","tag-intermediate"],"_links":{"self":[{"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/posts\/3308","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/comments?post=3308"}],"version-history":[{"count":0,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/posts\/3308\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/media\/3310"}],"wp:attachment":[{"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/media?parent=3308"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/categories?post=3308"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tde.fi\/founder-resource\/wp-json\/wp\/v2\/tags?post=3308"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}