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The Adoption of Blockchain-based Decentralized Exchanges

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arxiv 2103.08842 v4 pith:RVDN6PVG submitted 2021-03-16 q-fin.TR

Agostino Capponi , Ruizhe Jia This is my paper · ORCID
classification q-fin.TR
keywords tokenammsarbitrageblockchain-baseddecentralizedexchangesinvestorsmarket
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We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of blockchain-based decentralized exchanges. We show that the order execution mechanism yields token value loss for liquidity providers if token exchange rates are volatile. AMMs are adopted only if their token pairs are of high personal use for investors, or the token price movements of the pair are highly correlated. A pricing curve with higher curvature reduces the arbitrage problem but also investors' surplus. Pooling multiple tokens exacerbates the arbitrage problem. We provide statistical support for our main model implications using transaction-level data of AMMs.

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Cited by 5 Pith papers

Reviewed papers in the Pith corpus that reference this work. Sorted by Pith novelty score. Full citation record

  1. Optimal Fees for Liquidity Provision in Automated Market Makers

    q-fin.TR 2025-08 conditional novelty 7.0 of 10

    Optimal AMM fees sit just below all-in CEX trading costs in normal markets, rise with volatility, and become effectively infinite (halt trading) in extreme volatility.

  2. Multi-Currency AMMs for Decentralized FOREX Markets: Feasibility & Optimal Design

    q-fin.TR 2026-07 conditional novelty 6.0 of 10

    Optimized multi-currency constant-mean AMM pools with correlation-based currency clustering cut modeled FX trading costs by ~13% versus USD vehicle-currency routing.

  3. Reinforcement Learning for Execution under Dynamic Fees in a Closed-Loop DEX Simulator

    cs.LG 2026-07 accept novelty 6.0 of 10

    In a reserved 1,000-seed closed-loop DEX simulation with forced completion, a small DQN cuts implementation shortfall 13.3 bps versus tuned one-step routing under dynamic fees, with no detectable edge under constant fees.

  4. Dynamics of Liquidity Surfaces in Uniswap v3

    q-fin.TR 2025-09 conditional novelty 6.0 of 10

    Uniswap v3 5 bps liquidity surfaces have a stable low-rank structure aligned with Legendre polynomials, with AR(1)-GARCH factor dynamics.

  5. Optimal Dynamic Fees in Automated Market Makers

    q-fin.TR 2025-06 conditional novelty 6.0 of 10

    In a constant-function market maker, optimal dynamic fees balance arbitrage deterrence against noise-trader attraction, and a fee that is linear in inventory and external price is a near-optimal approximation.

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