An Overview of Drift Protocol

Over the past two years, volume on decentralized exchanges has grown considerably (Figure 1, below). Among other reasons, this growth is commonly attributed to the ease of creating de novo liquid markets. This success was largely driven by the constant function AMM (cfAMM), previously proposed by Bancor and later popularized by Uniswap.  

Arguably the key benefits of the cfAMM for the provisioning of spot liquidity are: (1) simple computations suitable for the Ethereum L1, (2) full range liquidity, and (3) amenability to simple tokenization of LP shares. While these features were tremendously powerful for spot markets, they do not represent a complete solution for perpetual swap (perps) liquidity.