LIPIcs.AFT.2023.24.pdf
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Batching Trades on Automated Market Makers
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Andrea Canidio 
,
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5th Conference on Advances in Financial Technologies (AFT 2023)
Series: Leibniz International Proceedings in Informatics (LIPIcs)
Conference: Advances in Financial Technologies (AFT) - License:
Creative Commons Attribution 4.0 International license
- Publication Date: 2023-10-18
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Acknowledgements
We are grateful to Felix Leupold and Martin Köppelmann for initial discussions on batch trading on AMM that led to the writing of this paper. We also thank Haris Angelidakis, Eric Budish, Agostino Capponi, Felix Henneke, Fernando Martinelli, Ciamac Moallemi, Andreas Park, and Anthony Lee Zhang for numerous comments and suggestions.
Cite AsGet BibTex
Andrea Canidio and Robin Fritsch. Batching Trades on Automated Market Makers. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 24:1-24:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
https://doi.org/10.4230/LIPIcs.AFT.2023.24
https://doi.org/10.4230/LIPIcs.AFT.2023.24
Abstract
We consider an automated market maker (AMM) in which all trades are batched and executed at a price equal to the marginal price (i.e., the price of an arbitrarily small trade) after the batch trades. We show that such an AMM is a function maximizing AMM (or FM-AMM): for given prices, it trades to reach the highest possible value of a given function. Competition between arbitrageurs guarantees that an FM-AMM always trades at a fair, equilibrium price, and arbitrage profits (also known as LVR) are eliminated. Sandwich attacks are also eliminated because all trades occur at the exogenously-determined equilibrium price. Finally, we show that our results are robust to the case where the batch has exclusive access to the FM-AMM, but can also trade on a traditional constant function AMM.
Subject Classification
ACM Subject Classification
- Applied computing → Economics
Keywords
- Arbitrage profits
- Loss-vs-Rebalancing (LVR)
- MEV
- Sandwich attacks
- AMM
- Mechanism design
- Batch trading
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References
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