Related papers: Arbitrage on Decentralized Exchanges
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
We derive the arbitrage gains or, equivalently, Loss Versus Rebalancing (LVR) for arbitrage between \textit{two imperfectly liquid} markets, extending prior work that assumes the existence of an infinitely liquid reference market. Our…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
We analyze the market quality of centralized crypto exchanges (CEXs) and decentralized blockchain-based venues (DEXs) using a unique and comprehensive dataset. Focusing on two fundamental aspects, transaction costs and deviations from the…
Automated Market Makers (AMMs) are a central component of decentralized exchanges, yet their equilibrium foundations and microeconomic mechanisms remain incompletely understood. This paper develops a dynamic equilibrium framework for…
We propose a decentralized market model in which agents can negotiate bilateral contracts. This builds on a similar, but centralized, model of trading networks introduced by Hatfield et al. in 2013. Prior work has established that…
We find an approximate Nash equilibrium in a game between decentralized exchanges (DEXs) that compete for order flow by setting dynamic trading fees. We characterize the equilibrium via a coupled system of partial differential equations and…
Revert protection is a feature provided by some blockchain platforms that prevents users from incurring fees for failed transactions. We study the economic implications and benefits of revert protection in the context of priority gas…
We consider the impact of trading fees on the profits of arbitrageurs trading against an automated market maker (AMM) or, equivalently, on the adverse selection incurred by liquidity providers (LPs) due to arbitrage. We extend the model of…
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…
We study the optimal routing problem in decentralized exchanges built on Constant Function Market Makers when trades can be split across multiple heterogeneous pools and execution incurs fixed on-chain costs (gas fees). While prior routing…
We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled…
Reduced installation and operating costs give energy storage systems an opportunity to participate actively and profitably in electricity markets. In addition to providing ancillary services, energy storage systems can also arbitrage…
Decentralised exchanges (DEXs) have transformed trading by enabling trustless, permissionless transactions, yet they face significant challenges such as impermanent loss and slippage, which undermine profitability for liquidity providers…
Arbitrage can arise from the simultaneous purchase and sale of the same asset in different markets in order to profit from a difference in its price. This work systematically reviews arbitrage opportunities between Automated Market Makers…
Consider a market of competing model providers selling query access to models with varying costs and capabilities. Customers submit problem instances and are willing to pay up to a budget for a verifiable solution. An arbitrageur…
Blockchains, and specifically smart contracts, have promised to create fair and transparent trading ecosystems. Unfortunately, we show that this promise has not been met. We document and quantify the widespread and rising deployment of…
Decentralized finance (DeFi) markets spread across Layer-1 (L1) and Layer-2 (L2) blockchains rely on arbitrage to keep prices aligned. Today most price gaps are closed against centralized exchanges (CEXes), whose deep liquidity and fast…
There is vast empirical evidence that given a set of assumptions on the real-world dynamics of an asset, the European options on this asset are not efficiently priced in options markets, giving rise to arbitrage opportunities. We study…
This study explores the design of an efficient rebate policy in auction markets, focusing on a continuous-time setting with competition among market participants. In this model, a stock exchange collects transaction fees from auction…