A General Framework for Impermanent Loss in Automated Market Makers

We provide a framework for analyzing impermanent loss for general Automated Market Makers (AMMs) and show that Geometric Mean Market Makers (G3Ms) are in a rigorous sense the simplest class of AMMs from an impermanent loss viewpoint. In this context, it becomes clear why automated market makers like...

Full description

Saved in:
Bibliographic Details
Main Authors Tiruviluamala, Neelesh, Port, Alexander, Lewis, Erik
Format Journal Article
LanguageEnglish
Published 21.03.2022
Subjects
Quantitative Finance - Trading and Microstructure
Online AccessGet full text

Cover

More Information
Summary:We provide a framework for analyzing impermanent loss for general Automated Market Makers (AMMs) and show that Geometric Mean Market Makers (G3Ms) are in a rigorous sense the simplest class of AMMs from an impermanent loss viewpoint. In this context, it becomes clear why automated market makers like Curve ([Ego19]) require more parameters in order to specify impermanent loss. We suggest the proper parameter space on which impermanent loss should be considered and prove results that help in understanding the impermanent loss characteristics of different AMMs.
DOI:10.48550/arxiv.2203.11352