Related papers: Liquidation Dynamics in DeFi and the Role of Trans…
We investigate the most common type of blockchain-based decentralized exchange, which are known as constant function market makers (CFMMs). We examine the the market microstructure around CFMMs and present a model for valuing the liquidity…
Automated market makers are a popular mechanism used on decentralized exchange, through which users trade assets with each other directly and automatically through a liquidity pool and a fixed pricing function. The liquidity provider…
In this paper, we propose an analytical method to compute the collateral liquidation probability in decentralized finance (DeFi) stablecoin single-collateral lending. Our approach models the collateral exchange rate as a zero-drift…
Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This…
This article explores the optimisation of trading strategies in Constant Function Market Makers (CFMMs) and centralised exchanges. We develop a model that accounts for the interaction between these two markets, estimating the conditional…
In this research, we develop a trading strategy for the discrete-time optimal liquidation problem of large order trading with different market microstructures in an illiquid market. In this framework, the flow of orders can be viewed as a…
Financial options are fundamental to traditional markets, enabling strategies ranging from hedging to speculating. Yet, while the Automated Market Maker paradigm has revolutionized decentralized spot markets, no equivalent standard has…
In decentralized finance ("DeFi"), automated market makers (AMMs) enable traders to programmatically exchange one asset for another. Such trades are enabled by the assets deposited by liquidity providers (LPs). The goal of this paper is to…
We study the economic viability of liquidity provision in decentralised exchanges (DEXs) within a structural framework in which market outcomes are endogenous. We formulate strategic interactions as a sequential game: a risk-averse…
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…
Lending protocols are one of the main applications of Decentralized Finance (DeFi), enabling crypto-assets loan markets with a total value estimated in the tens of billions of dollars. Unlike traditional lending systems, these protocols…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
Cryptocurrencies employ auction-esque transaction fee mechanisms (TFMs) to allocate transactions to blocks, and to determine how much fees miners can collect from transactions. Several impossibility results show that TFMs that satisfy a…
The StableSims project set out to determine optimal parameters for the new auction mechanism, Liquidations 2.0, used by MakerDAO, a protocol built on Ethereum offering a decentralized, collateralized stablecoin called Dai. We developed an…
Users of decentralized finance (DeFi) applications face significant risks from adversarial actions that manipulate the order of transactions to extract value from users. Such actions -- an adversarial form of what is called…
We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE…
This paper introduces and analyzes \emph{defensive rebalancing}, a novel mechanism for protecting constant-function market makers (CFMMs) from value leakage due to arbitrage. A \emph{rebalancing} transfers assets directly from one CFMM's…
Everlasting options, a relatively new class of perpetual financial derivatives, have emerged to tackle the challenges of rolling contracts and liquidity fragmentation in decentralized finance markets. This paper offers an in-depth analysis…
Automated Market Makers (AMMs) have cemented themselves as an integral part of the decentralized finance (DeFi) space. AMMs are a type of exchange that allows users to trade assets without the need for a centralized exchange. They form the…
Constant product markets with concentrated liquidity (CL) are the most popular type of automated market makers. In this paper, we characterise the continuous-time wealth dynamics of strategic LPs who dynamically adjust their range of…