Related papers: Optimal Fees for Geometric Mean Market Makers
In decentralized finance, any individual can pool their assets into an automated market maker (AMM) -- herein we focus on the constant product market maker (CPMM) -- in exchange for a claim on a fraction of future pool assets and fees…
We consider the market microstructure of automated market makers (AMMs) from the perspective of liquidity providers (LPs). Our central contribution is a ``Black-Scholes formula for AMMs''. We identify the main adverse selection cost…
This paper develops a robust mathematical framework for Constant Function Market Makers (CFMMs) by transitioning from traditional token reserve analyses to a coordinate system defined by price and intrinsic liquidity. We establish a…
We consider Geometric Mean Market Makers -- a special type of Decentralized Exchange -- with two types of users: liquidity takers and arbitrageurs. Liquidity takers trade at prices that can create arbitrage opportunities, while arbitrageurs…
Decentralized Finance (DeFi) has revolutionized financial markets by enabling complex asset-exchange protocols without trusted intermediaries. Automated Market Makers (AMMs) are a central component of DeFi, providing the core functionality…
We present an automated market-making (AMM) cross-settlement mechanism for digital assets on interoperable blockchains, focusing on central bank digital currencies (CBDCs) and stable coins. We develop an innovative approach for generating…
Automated market makers (AMMs) have emerged as the dominant market mechanism for trading on decentralized exchanges implemented on blockchains. This paper presents a single mechanism that targets two important unsolved problems for AMMs:…
We investigate whether the fee income from trades on the CFM is sufficient for the liquidity providers to hedge away the exposure to market risk. We first analyse this problem through the lens of continuous-time financial mathematics and…
Automated Market Makers (AMMs) are decentralized applications that allow users to exchange crypto-tokens without the need for a matching exchange order. AMMs are one of the most successful DeFi use cases: indeed, major AMM platforms process…
Decentralized exchanges (DEXs) face persistent challenges in liquidity retention and user engagement due to inefficiencies in conventional automated market maker (AMM) designs. This work proposes a dual-mechanism framework to address these…
Decentralized exchanges are widely used platforms for trading crypto assets. The most common types work with automated market makers (AMM), allowing traders to exchange assets without needing to find matching counterparties. Thereby,…
Within this work we consider an axiomatic framework for Automated Market Makers (AMMs). AMMs are smart contracts that set prices for swaps on a pool of assets. By imposing reasonable axioms on the underlying utility function, we are able to…
Liquidation of collateral are the primary safeguard for solvency of lending protocols in decentralized finance. However, the mechanics of liquidations expose these protocols to predatory price manipulations and other forms of Maximal…
Designing automated market makers (AMMs) for prediction markets on combinatorial securities over large outcome spaces poses significant computational challenges. Prior research has primarily focused on combinatorial prediction markets…
This paper presents a general framework for the design and analysis of exchange mechanisms between two assets that unifies and enables comparisons between the two dominant paradigms for exchange, constant function market markers (CFMMs) and…
We study axiomatic foundations for different classes of constant-function automated market makers (CFMMs). We focus particularly on separability and on different invariance properties under scaling. Our main results are an axiomatic…
Automated Market Makers (AMMs) are essential to decentralized finance, offering continuous liquidity and enabling intermediary-free trading on blockchains. However, participants in AMMs are vulnerable to Maximal Extractable Value (MEV)…
Public blockchains implement a fee mechanism to allocate scarce computational resources across competing transactions. Most existing fee market designs utilize a joint, fungible unit of account (e.g., gas in Ethereum) to price otherwise…
We consider the social welfare that can be facilitated by a constant function market maker (CFMM). When there is sufficient liquidity available to the CFMM, it can approximate the optimal social welfare when all users transactions are…
Two popular forms of automated market makers are constant sum and constant product (CSMM and CPMM respectively). Each has its advantages and disadvantages: CSMMs have stable exchange rates but are vulnerable to arbitrage and can sometimes…