License: Creative Commons Attribution 4.0 International license (CC BY 4.0)
When quoting this document, please refer to the following
DOI: 10.4230/LIPIcs.AFT.2023.24
URN: urn:nbn:de:0030-drops-192139
URL: http://dagstuhl.sunsite.rwth-aachen.de/volltexte/2023/19213/
Canidio, Andrea ;
Fritsch, Robin
Batching Trades on Automated Market Makers
Abstract
We consider an automated market maker (AMM) in which all trades are batched and executed at a price equal to the marginal price (i.e., the price of an arbitrarily small trade) after the batch trades. We show that such an AMM is a function maximizing AMM (or FM-AMM): for given prices, it trades to reach the highest possible value of a given function. Competition between arbitrageurs guarantees that an FM-AMM always trades at a fair, equilibrium price, and arbitrage profits (also known as LVR) are eliminated. Sandwich attacks are also eliminated because all trades occur at the exogenously-determined equilibrium price. Finally, we show that our results are robust to the case where the batch has exclusive access to the FM-AMM, but can also trade on a traditional constant function AMM.
BibTeX - Entry
@InProceedings{canidio_et_al:LIPIcs.AFT.2023.24,
author = {Canidio, Andrea and Fritsch, Robin},
title = {{Batching Trades on Automated Market Makers}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {24:1--24:17},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/opus/volltexte/2023/19213},
URN = {urn:nbn:de:0030-drops-192139},
doi = {10.4230/LIPIcs.AFT.2023.24},
annote = {Keywords: Arbitrage profits, Loss-vs-Rebalancing (LVR), MEV, Sandwich attacks, AMM, Mechanism design, Batch trading}
}
Keywords: |
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Arbitrage profits, Loss-vs-Rebalancing (LVR), MEV, Sandwich attacks, AMM, Mechanism design, Batch trading |
Collection: |
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5th Conference on Advances in Financial Technologies (AFT 2023) |
Issue Date: |
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2023 |
Date of publication: |
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18.10.2023 |