A theory of Automated Market Makers in DeFi

Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of crypto-tokens, without the need to find a counter-party. There are several implementations and models for AMMs, featuring a variety of sophisticated ec...

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Veröffentlicht in:	Logical methods in computer science Jg. 18, Issue 4
Hauptverfasser:	Bartoletti, Massimo, Chiang, James Hsin-yu, Lluch-Lafuente, Alberto
Format:	Journal Article
Sprache:	Englisch
Veröffentlicht:	Logical Methods in Computer Science e.V 01.01.2022
Schlagworte:	68n30 computer science - computer science and game theory computer science - formal languages and automata theory i.6.4
ISSN:	1860-5974, 1860-5974
Online-Zugang:	Volltext
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Beschreibung
Zusammenfassung:	Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of crypto-tokens, without the need to find a counter-party. There are several implementations and models for AMMs, featuring a variety of sophisticated economic mechanisms. We present a theory of AMMs. The core of our theory is an abstract operational model of the interactions between users and AMMs, which can be concretised by instantiating the economic mechanisms. We exploit our theory to formally prove a set of fundamental properties of AMMs, characterizing both structural and economic aspects. We do this by abstracting from the actual economic mechanisms used in implementations, and identifying sufficient conditions which ensure the relevant properties. Notably, we devise a general solution to the arbitrage problem, the main game-theoretic foundation behind the economic mechanisms of AMMs.
ISSN:	1860-5974 1860-5974
DOI:	10.46298/lmcs-18(4:12)2022