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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Vydáno v:Logical methods in computer science Ročník 18, Issue 4
Hlavní autoři: Bartoletti, Massimo, Chiang, James Hsin-yu, Lluch-Lafuente, Alberto
Médium: Journal Article
Jazyk:angličtina
Vydáno: Logical Methods in Computer Science e.V 01.01.2022
Témata:
68n30
computer science - computer science and game theory
computer science - formal languages and automata theory
i.6.4
ISSN:1860-5974, 1860-5974
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Abstract 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.
AbstractList 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.
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.
Author Lluch-Lafuente, Alberto
Chiang, James Hsin-yu
Bartoletti, Massimo
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Snippet Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of...
Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of...
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computer science - formal languages and automata theory
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Title A theory of Automated Market Makers in DeFi
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