MM Pool & Order Book

Market making is a vital function within Mount Exchange, where a market maker, typically a liquidity pool, provides liquidity by offering both buy and sell prices for underlying assets like stocks or cryptocurrencies. These prices, known as bid (buy) and ask (sell) prices, establish a market for those assets.

Perpetual traders benefit from market making as it ensures a continuous flow of buying and selling opportunities. Market makers earn profits from the bid-ask spread—the difference between buying and selling prices—while striving to keep the spread narrow to attract more traders. They achieve this by continually adjusting their pool strategy based on market conditions, supply, demand, and their risk assessment.

By supplying liquidity, market makers narrow the gap between supply and demand, enabling traders to execute transactions more easily and at competitive prices. This process improves market efficiency, stimulates trading activity, and helps maintain a fair and orderly market.

Market Maker Pool

Market Maker Pools function as sophisticated intermediaries through which market makers provide liquidity. Market makers contribute funds and establish Market Maker Pools according to their strategic models. In operation, these pools take on the roles traditionally held by individual market makers and liquidity pools, executing opening and closing trades in alignment with predefined strategies. Essentially, MM Pools can be viewed as sets of quantitative strategies that, rather than actively initiating trades, are designed to passively accept trades when conditions align with the strategy.

The interaction between MM Pools and traders can be understood as a strategic game, rooted in game theory. This framework outlines the constraints on the players' actions and their respective interests, with MM Pools typically holding a price advantage derived from the spread set by the strategy. The spread, in this context, is the difference between the bid and ask prices provided by the MM Pool for long and short positions, compared to the fair price established by the oracle. This spread is determined by the market maker when the MM Pool is created, ensuring that when traders open a position, the execution price tends to favor the market maker.

A similar strategic game exists among market makers themselves. When a trader requests a quote, Mount's Order Matching Engine selects the pool offering the most competitive price for execution. If a pool's spread is set too wide, making its prices non-competitive, it will likely fail to attract traders, resulting in minimal profit or incentive for the market maker associated with that pool. Conversely, if a market maker sets a narrow spread or even matches the oracle price, they may prioritize attracting more orders in their market-making strategy. However, this approach could also lead to higher costs for opening positions and increased exposure to risk.

Fusion Mode with Order Book

With advancements in blockchain infrastructure, particularly Layer 1 solutions, the potential for low-cost, high-speed market making with an on-chain order book has become a reality. In response, Mount Exchange has introduced the innovative 'Fusion Mode,' featuring advanced functionalities:

• Expanded Trading Opportunities: Enables market making through an integrated order book.

• Enhanced Liquidity: Partners with seasoned industry market makers to boost liquidity.

• Optimized Capital Efficiency: Leverages liquidity from both Market Maker Pools and the Order Book for maximum efficiency.

The integration of the order book allows users to access real-time buy and sell orders, offering greater transparency and enabling more informed trading decisions. By combining the expertise of experienced market makers with the order book system, Mount Exchange positions itself as a leading platform within the blockchain ecosystem, delivering a seamless and powerful trading experience for both traders and market makers.