How Automated Market Makers Approach the Thin Market Problem in Cryptoeconomic Systems

Daniel Kirste, Niclas Kannengie{\ss}er, Ricky Lamberty and Ali Sunyaev

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Abstract: The proper design of automated market makers (AMMs) is crucial to enable the continuous trading of assets represented as digital tokens on markets of cryptoeconomic systems. Improperly designed AMMs can make such markets suffer from the thin market problem (TMP), which can cause cryptoeconomic systems to fail their purposes. We developed an AMM taxonomy that showcases AMM design characteristics. Based on the AMM taxonomy, we devised AMM archetypes implementing principal solution approaches for the TMP. The main purpose of this article is to support practitioners and researchers in tackling the TMP through proper AMM designs.

Date: 2023-09, Revised 2023-09
New Economics Papers: this item is included in nep-des, nep-ger and nep-pay
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