Based on the concept of automated market makers (AMMs), virtual automated market makers are used to swap virtual, synthetic assets such as derivatives contracts. Virtual Automated Market Maker (vAMM) is a new type of AMM that is expanding the applications from the swap of tokens to derivatives such as perpetual contracts.
There are no real assets stored inside the vAMM itself. Rather, it helps traders make leveraged trades on the basis of the collateral stored in the smart contract vault. vAMMs are not used in spot trading but used for price discovery in handling the leverage. The vAMMs calculate the entry and exit price every time a trade is executed. They function similarly to AMM style exchanges. The first generation vAMMs use a fixed formula while calculating the prices. However, the second generation vAMMs make use of concentrated liquidity design along with virtual tokens, allowing makers to provide liquidity with leverage.