Related papers: Generalizing Impermanent Loss on Decentralized Exc…
This paper studies liquid staking tokens (LSTs) on automated market makers (AMMs), both theoretically and empirically. LSTs are tokenized representations of staked assets on proof-of-stake blockchains. First, we model LST-liquidity on AMMs…
One of the exciting recent developments in decentralized finance (DeFi) has been the development of decentralized cryptocurrency exchanges that can autonomously handle conversion between different cryptocurrencies. Decentralized exchange…
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 study liquidity on decentralized exchanges (DEXs), identifying factors at the platform, blockchain, token pair, and liquidity pool levels with predictive power for market depth metrics. We introduce the v2 counterfactual spread metric, a…
Geometric mean market makers (G3Ms), such as Uniswap and Balancer, comprise a popular class of automated market makers (AMMs) defined by the following rule: the reserves of the AMM before and after each trade must have the same (weighted)…
We introduce a class of utility-based market makers that always accept orders at their risk-neutral prices. We derive necessary and sufficient conditions for such market makers to have bounded loss. We prove that hyperbolic absolute risk…
We examine how the introduction of concentrated liquidity has changed the liquidity provision market in automated market makers such as Uniswap. To this end, we compare average liquidity provider returns from trading fees before and after…
In traditional finance, the Black & Scholes model has guided almost 50 years of derivatives pricing, defining a standard to model any volatility-based product. With the rise of Decentralized Finance (DeFi) and constant product Automated…
Concentrated Liquidity Market Makers (CLMMs) represent a fundamental innovation in market microstructure, transforming liquidity provision from passive portfolio allocation to active risk management. This evolution creates significant…
Decentralized finance (DeFi) has revolutionized the financial landscape, with protocols like Uniswap offering innovative automated market-making mechanisms. This article explores the development of a backtesting framework specifically…
Large deployment of distribute energy resources and the increasing awareness of end-users towards their energy procurement are challenging current practices of electricity markets. A change of paradigm, from a top-down hierarchical approach…
Decentralized exchanges (DEXs) provide a means for users to trade pairs of assets on-chain without the need for a trusted third party to effectuate a trade. Amongst these, constant function market maker DEXs such as Uniswap handle the most…
Passive liquidity providers (LPs) in automated market makers (AMMs) face losses due to adverse selection (LVR), which static trading fees often fail to offset in practice. We study the key determinants of LP profitability in a dynamic…
The emergence of Concentrated Liquidity Market Makers (CLMMs) has made liquidity provision on decentralized exchanges an active and risk-sensitive task. However, the standalone profitability of liquidity provision remains unclear for…
The trustless nature of permissionless blockchains renders overcollateralization a key safety component relied upon by decentralized finance (DeFi) protocols. Nonetheless, factors such as price volatility may undermine this mechanism. In…
This paper presents the results of a comprehensive empirical study of losses to arbitrageurs (following the formalization of loss-versus-rebalancing by [Milionis et al., 2022]) incurred by liquidity providers on automated market makers…
In the ever evolving landscape of decentralized finance automated market makers (AMMs) play a key role: they provide a market place for trading assets in a decentralized manner. For so-called bluechip pairs, arbitrage activity provides a…
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…
We consider an illiquid financial market where a risk averse investor has to liquidate a portfolio within a finite time horizon [0,T] and can trade continuously at a traditional exchange (the "primary venue") and in a dark pool. At the…
We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of blockchain-based decentralized exchanges. We show that the order execution mechanism yields token value loss for liquidity providers if…