Improving Capital Efficiency and Impermanent Loss: Multi-Token Proactive Market Maker

Wayne Chen, Songwei Chen and Preston Rozwood

Papers from arXiv.org

Abstract: Current approaches to the cryptocurrency automated market makers result in poor impermanent loss and capital efficiency. We analyze the mechanics underlying DODO Exchange's proactive market maker (PMM) to probe for solutions to these issues, leading to our key insight of multi-token trading pools. We explore this paradigm primarily through the construction of a generalization of PMM, the multi-token token proactive market maker (MPMM). We show via simulations that MPMM has better impermanent loss and capital efficiency than comparable market makers under a variety of market scenarios. We also test multi-token generalizations of other common 2-token pool market makers. Overall, this work demonstrates several advantages of multi-token pools and introduces a novel multi-token pool market maker.

Date: 2023-08, Revised 2025-01
New Economics Papers: this item is included in nep-ger and nep-mst
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2309.00632 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2309.00632

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().