Market Maker Operations

Main Market Makers (MMMs) provide essential liquidity to the Diffusal protocol. This guide covers MMM-specific operations, privileges, and best practices.

MMM Privileges

Main Market Makers receive special treatment:

Portfolio Patterns

MMMs typically maintain complex portfolios with offsetting positions:

Delta-Neutral Structure

Long Call (BTC $80k)    → +Δ
Short Put (BTC $75k)    → +Δ
Short Call (BTC $85k)   → -Δ
Long Put (BTC $70k)     → -Δ

The goal is to maintain near-zero delta exposure while collecting premium from the bid-ask spread.

Risk Management

MMM portfolios require careful risk management:

1. Stress Testing: Monitor portfolio under 4-corner stress scenarios
2. Gamma Exposure: Limit aggregate gamma across all positions
3. Expiry Management: Roll positions before expiry to avoid settlement obligations

Settlement Readiness

Unlike regular users, MMMs:

• Are NOT subject to settlement readiness liquidation
• Must still maintain sufficient margin for regular liquidations
• Should monitor cash positions for settlement obligations

This exemption exists because:

• MMMs are sophisticated, well-capitalized entities
• Their positions are typically hedged and actively managed
• Forced liquidation would disrupt market liquidity

Margin Calculator Deployment

MMMs should maintain their own margin calculator deployment for:

• Pre-trade validation
• Portfolio stress testing
• Real-time margin monitoring

// Example: Check margin before trade
const marginAfter = await marginCalculator.calculateMargin({
  portfolio: currentPortfolio,
  newPosition: proposedTrade,
});

if (marginAfter.equity < marginAfter.maintenanceMargin) {
  throw new Error("Trade would violate margin requirements");
}

Pre-Trade Validation

Always validate trades before submission:

1. Check portfolio margin after the trade
2. Verify stress loss under 4-corner scenarios
3. Ensure sufficient deposit for premium obligations

Operational Checklist

Daily operations for MMMs:

• Monitor delta exposure across all underlyings
• Check positions nearing expiry (within 7 days)
• Validate margin adequacy under stress scenarios
• Review and adjust RFQ pricing
• Roll expiring positions as needed

Related

• Portfolios - Portfolio structure and equity
• Margin System - Margin calculations
• Liquidation - Liquidation mechanics
• RFQ Flow - Request-for-quote system