License: Creative Commons Attribution 4.0 International license (CC BY 4.0)
When quoting this document, please refer to the following
DOI: 10.4230/OASIcs.Tokenomics.2021.13
URN: urn:nbn:de:0030-drops-159103
URL: http://dagstuhl.sunsite.rwth-aachen.de/volltexte/2022/15910/
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Engel, Daniel ; Herlihy, Maurice

Presentation and Publication: Loss and Slippage in Networks of Automated Market Makers

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OASIcs-Tokenomics-2021-13.pdf (0.8 MB)

Abstract

Automated market makers (AMMs) are smart contracts that automatically trade electronic assets according to a mathematical formula. This paper investigates how an AMM’s formula affects the interests of liquidity providers, who endow the AMM with assets, and traders, who exchange one asset for another at the AMM’s rates. Linear slippage measures how a trade’s size affects the trader’s return, angular slippage measures how a trade’s size affects the subsequent market price, divergence loss measures the opportunity cost of providers' investments, and load balances the costs to traders and providers. We give formal definitions for these costs, show that they obey certain conservation laws: these costs can be shifted around but never fully eliminated. We analyze how these costs behave under composition, when simple individual AMMs are linked to form more complex networks of AMMs.

BibTeX - Entry

@InProceedings{engel_et_al:OASIcs.Tokenomics.2021.13,
  author =	{Engel, Daniel and Herlihy, Maurice},
  title =	{{Presentation and Publication: Loss and Slippage in Networks of Automated Market Makers}},
  booktitle =	{3rd International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2021)},
  pages =	{13:1--13:23},
  series =	{Open Access Series in Informatics (OASIcs)},
  ISBN =	{978-3-95977-220-4},
  ISSN =	{2190-6807},
  year =	{2022},
  volume =	{97},
  editor =	{Gramoli, Vincent and Halaburda, Hanna and Pass, Rafael},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/opus/volltexte/2022/15910},
  URN =		{urn:nbn:de:0030-drops-159103},
  doi =		{10.4230/OASIcs.Tokenomics.2021.13},
  annote =	{Keywords: Decentralized Finance, AMM, Uniswap}
}

Keywords: Decentralized Finance, AMM, Uniswap
Collection: 3rd International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2021)
Issue Date: 2022
Date of publication: 18.03.2022

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