Conference paper · Book chapter
A Theory of Automated Market Makers in DeFi
Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. They allow users to exchange units of different types of crypto-assets, 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.
| Language: | English |
|---|---|
| Publisher: | Springer |
| Year: | 2021 |
| Pages: | 168-187 |
| Proceedings: | 23<sup>rd</sup> IFIP WG 6.1 International Conference on Coordination Models and Languagesec 2021 |
| Series: | Lecture Notes in Computer Science (including Subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics) |
| ISBN: | 3030781410 , 3030781429 , 9783030781415 and 9783030781422 |
| ISSN: | 16113349 and 03029743 |
| Types: | Conference paper and Book chapter |
| DOI: | 10.1007/978-3-030-78142-2_11 |
| ORCIDs: | Chiang, James Hsin yu and Lluch-Lafuente, Alberto |
