Dynamic AMM v2: Helping LPs and Launches Win
Liquidity is the lifeblood of DeFi and Meteora is committed to building the best liquidity pools for LPs (liquidity providers), launches, and launchpads.
That’s why when we set out to build the Dynamic AMM v2 (DAMM v2), we weren’t just looking to improve the user experience from v1.
We wanted to create a brand new approach of providing liquidity on a constant product AMM (automated market maker) that gives LPs more ways and opportunities to earn fees, minus the hassle.
We also sought feedback from many users and partners to address the pain points that legacy AMM architectures have been unable to solve, including the unfair advantages of sniper bots, low capital efficiency, and inflexible LP and fee collection mechanics.
We believe that DAMM v2 is a powerful solution with different features to cater to the needs of a wide variety of LPs.
Unveiling DAMM v2 and Meteora v2: https://x.com/MeteoraAG/status/1927262330858979518
Key Features & Benefits of DAMM v2
DAMM v2 is not a simple iteration of DAMM v1.
It’s an entirely new and separate program designed to empower liquidity providers, creators, and launchpads with greater control, flexibility, and capital efficiency, especially during one of the most critical moments for any project: the token launch.
It combines the best elements of constant-product pools with the powerful fee earning capabilities of Meteora’s DLMM, and introduces innovative features that address the critical needs of LPs and token launches.
Let’s dive into the features and the rationale behind them.
1) Support for SPL and Token 2022
Solana’s token ecosystem is evolving, and there are increasingly more tokens using the Token 2022 standard to enable more complex token mechanics. DAMM v2 supports both SPL tokens and Token 2022 standards, including extensions like transfer fees and metadata pointers.
This makes DAMM v2 future-ready for a world with a trillion different tokens, allowing creators to launch and support liquidity for a broader set of assets.
2) Dynamic Fees to Leverage Price Volatility
Inspired by the DLMM, DAMM v2 also has Dynamic Fee, enabling LPs to ride the volatility and maximize their yield! Creators can configure pools to only charge a Base Fee or add a Dynamic Fee that scales with price volatility.
During volatile trading periods, Dynamic Fees allow LPs to capture much more fees and mitigate against impermanent loss, helping to increase the likelihood of LP profitability. At the same time, Dynamic Fees also act as an anti-sniper fee mechanism at token launch.
Currently, the max Dynamic Fee is configured to be ~20% of the Base Fee and Dynamic Fee must always be <= Base Fee
Example:
- Base Fee = 0.25%
- Dynamic Fee = 0.0499%
- Total LP Fee = 0.2999%
3) Anti-Sniper LP Fee Scheduler
Everyone hates sniper bots draining liquidity seconds after a pool goes live and dumping on the community after.
DAMM v2 tackles this problem by offering an on-chain LP Fee Scheduler that lets pool creators start with a higher fee that drops linearly or exponentially over time.
By default, LP Fees drop over time per second. But partners using the pool creation setup script have the following options:
- Time based (unix timestamp): Fees change per second
- Slot based: Fees change per slot (1 slot = 1 block = ~0.4 secs)
Why is a Fee Scheduler feature important? Token launches are very vulnerable. This mechanism discourages early sniping, while capturing fees from malicious snipers to reward creators and genuine community participation instead.
Read more about DAMM v2’s on-chain Fee Scheduler in this case study.
4) Versatile LP Fee Collection
In DAMM v2, LP fees do not auto-compound. Instead, they are claimable separately, giving pool creators and LPs more control. This unlocks future innovations in fee distribution, such as fee sharing with partners or users who stake the tokens.
Plus, creators can choose how the swap fee is collected for LPs; the fee can be collected in both Base and Quote tokens, or Quote token only. For example, an LP can collect fees only in USDC instead of a combination of USDC and memecoin, providing greater optionality and streamlining fee collection and accounting.
5) Lock Liquidity (Permanently or with Vesting) while Claiming Fees
DAMM v2 allows pool creators to lock liquidity permanently or non-permanently with vesting. All locked liquidity can still earn and claim fees, forever.
Many token communities demand proof of commitment by having initial liquidity locked at launch, as this ensures the token creator is unable to suddenly withdraw most of the liquidity and “rug” users. However, in most other DEXes, creators also end up losing access to the potential swap fees from their liquidity.
By allowing creators to lock liquidity in their preferred way while still claiming swap fees from the locked liquidity, DAMM v2 strikes the perfect balance between trust and flexibility.
6) Transferrable Position NFTs
Unlike DLMM, where a liquidity position is represented by a position account, a liquidity position in DAMM v2 is in the form of a Position NFT, making liquidity fully transferrable between wallets.
This turns liquidity into a liquid asset and enables LPs to transfer ownership of locked liquidity fees to another wallet. Moreover, it opens the door to other potential DeFi innovations, such as an NFT marketplaces for LP positions, using the position NFT as collateral for leverage trading or yield farming, or fractionalizing and tokenizing NFTs so anyone who holds a token earns a share of the swap fees.
Read more about DAMM v2’s Position NFTs in this case study.
7) Concentrated Liquidity for Higher Capital Efficiency
DAMM v2 is fundamentally a constant product AMM that follows the x*y=k formula to calculate token pricing in the pool, and supports a price range from 0 to Infinity by default.
However, it has the unique ability to also allow pool creators to set a min-max price range to concentrate liquidity for that pool. Other LPs can then choose to deposit into the concentrated pool after it is created.
DAMM v2 is a massive improvement over traditional constant-product AMMs because it brings the high capital efficiency of CLMMs into a simpler model — giving LPs more volume and yield opportunities, but with less active management required.
Note: Currently, the creation of concentrated liquidity pools is permissioned and they can only be configured and created by the Meteora team.
8) Single-Sided Liquidity for Launches
Launching a token can be prohibitively costly on a typical AMM DEX, due to its requirement for an equivalent amount of USDC or SOL to pair with your token, and the subsequent community pressure to lock your liquidity forever.
For creators who want to launch their token but do not have sufficient USDC or SOL for initial liquidity, they can use DAMM v2 to programmatically set up a launch pool which supports single-sided liquidity, enabling them to bootstrap a market with just their token.
DAMM v2’s ability to support single-sided liquidity helps save costs and remove friction when bootstrapping liquidity at launch.
Read more about single-sided launches on DAMM v2 in this case study.
9) Built-in Farming Mechanism
DAMM v2 has farming built directly into the AMM program, with no additional deployment required, and no more juggling between separate pool and farming programs. This simplifies the farming setup process for projects. This is unlike DAMM v1, where there is a separate farming program.
For DAMM v2, each specific pool can create farming rewards and the pool has its own unique reward vault. Each reward vault has a maximum of 2 types of reward tokens, which is up to the initiator to specify. Rewards will be shared with all liquidity providers over the farming duration.
Currently, in this beta stage, a DAMM v2 farm can only be initialized by Meteora. And only a whitelisted funder address can fund rewards into the farm. So for now, projects have to reach out to the Meteora team to create a farm and add rewards. But we’re exploring ways to make this process permissionless.
10) Greater Cost Efficiency; Optimized for Launches and Integrations
DAMM v1 is integrated with Dynamic Vaults and this involves a lot of hot accounts, which makes it Compute Unit (CU)-heavy and more complex and costly for integrators to interact with.
DAMM v2 removes all that complexity from the equation by not having Dynamic Vaults integrated. This makes DAMM v2 more Compute Unit (CU)-optimized, with less SOL rent required. Creating a DAMM v2 Launch Pool position now costs ~0.022 SOL, compared to ~0.25 SOL for a DLMM Launch Pool, which is an order of magnitude improvement in terms of cost efficiency.
Lower costs for creators, LPs, and devs would mean more launches, more innovation, and broader participation!
11) Custom Pool Start Time
Creators often need to sync their token launch with a centralized exchange listing or some form of marketing campaign (e.g. token airdrop). DAMM v2 allows you to set a custom activation time at pool creation. This feature gives precise control to the pool creator or deployer to align CEX listings, marketing, PR, and token mechanics.
Integrated Launchpads
DAMM v2 has already been integrated by all the major trading platforms like Jupiter, Axiom, Photon and others — leading launchpads like Believe, Candle.tv, Time.fun and others have also integrated DAMM v2.
Launch and LP Tokens Your Way
With DAMM v2, we’ve tried our best to build what we felt the ideal AMM should be like. It is an entirely new program that redefines how liquidity is provided, managed, and optimized on an AMM.
Each feature was built with practical LP use cases and token launches in mind.
- Need to support liquidity for a Token 2022 standard token? No worries, DAMM v2 supports both SPL and Token 2022.
- Need sniper protection for your token launch? Check out A.S.S. — Anti-Sniper features such as Fee Scheduler, Dynamic Fee, and Alpha Vault are all supported by DAMM v2.
- Need to bootstrap liquidity for launch without USDC or SOL? Just deposit your token single-sided in your preferred price range to let users buy it at launch.
- Want to lock liquidity but still earn fees? Choose to lock liquidity permanently or lock with vesting, and get to claim fees forever either way.
- Want to transfer ownership of the locked liquidity and associated fees to someone else? Just transfer your position NFT to the preferred wallet address.
- Want to generate more volume and fees on your liquidity? Choose a liquidity pool that has a concentrated min-max price range.
Whether you’re a creator launching your first token or an LP planning to earn fees off a trending memecoin, DAMM v2 can provide the right tools to help you make more internet money through a simplified user experience.
We will continue to improve DAMM v2 and we can’t wait to witness the different ways LPs would experiment and use it to launch tokens and earn fees! Come share your strategies with us in the Meteora Discord.
