Matching Mechanism

Capital Efficiency

Capital efficiency is a crucial innovation at Mount Exchange that addresses longstanding challenges in decentralized finance (DeFi), particularly those related to capital efficiency and open interest (OI) limits. These issues have historically impeded the sustainable growth of market dynamics in DeFi.

Concentrated Liquidity

In Mount Exchange, market makers can enhance capital efficiency by specifying their price range when creating a Market Maker Pool. This is done by defining the spread, which is the difference between the buy (bid) and sell (ask) prices. The order-matching engine, which prioritizes price, ensures that the available capital is used in a more flexible and efficient manner. Essentially, the same amount of capital can support more trading activities and provide greater market depth, meaning there is more liquidity available at specific price levels.

10x Leverage to Amplify Liquidity

Leverage at Mount Exchange works similarly to traditional trading but with a focus on improving capital efficiency. By allowing market makers to use leverage—up to 10 times their initial capital—smaller deposits are needed in the Market Maker Pools. This means that the same amount of capital can be used more effectively, leading to greater liquidity in the market and allowing for more trading activity with less upfront capital.

The Multi-Objective Level Playing Field

Mount Exchange’s order-matching mechanism and MM Pool design allow for orders to be matched in both parallel and perpendicular manners. This flexibility is crucial because it means that trades and Market Maker Pools can be created without restrictions (permissionlessly), significantly enhancing the efficiency of order matching.

For example:

• Trader A opens a long position (betting the asset’s price will rise).

• Traders B, C, and D open short positions (betting the asset’s price will fall).

• These traders can then close their positions in a sequence that optimizes the use of available capital.

In theory, there’s no upper limit on the supported open interest (OI), which is the total value of outstanding trades. By cyclically utilizing funds—reinvesting profits and reallocating capital—traders and market makers can achieve significant leverage on their positions. This leads to a virtuous cycle: improved capital efficiency leads to fairer competition, better market dynamics, and even further improvements in capital efficiency.

In essence, Mount Exchange’s capital efficiency allows traders and market makers to amplify their strategies with less initial capital while supporting higher levels of OI. The order-matching mechanism at Mount Exchange delivers on the promise of capital efficiency, ensuring a more dynamic and competitive market environment.