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Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains

Authors Ciamac C. Moallemi , Dan Robinson

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Author Details

Ciamac C. Moallemi
  • Graduate School of Business, Columbia University, New York, NY, USA
Dan Robinson
  • Paradigm, San Francisco, CA, USA

Funding

  • Moallemi, Ciamac C.: The first author is supported by the Briger Family Digital Finance Lab at Columbia Business School, and is an advisor to Paradigm and to fintech companies.

Acknowledgements

The authors thank Eric Budish, Max Resnick, Anthony Zhang for helpful comments.

Cite AsGet BibTex

Ciamac C. Moallemi and Dan Robinson. Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 18:1-18:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
https://doi.org/10.4230/LIPIcs.AFT.2024.18

Abstract

Milionis et al. (2023) studied the rate at which automated market makers leak value to arbitrageurs when block times are discrete and follow a Poisson process, and where the risky asset price follows a geometric Brownian motion. We extend their model to analyze another popular mechanism in decentralized finance for onchain trading: Dutch auctions. We compute the expected losses that a seller incurs to arbitrageurs and expected time-to-fill for Dutch auctions as a function of starting price, volatility, decay rate, and average interblock time. We also extend the analysis to gradual Dutch auctions, a variation on Dutch auctions for selling tokens over time at a continuous rate. We use these models to explore the tradeoff between speed of execution and quality of execution, which could help inform practitioners in setting parameters for starting price and decay rate on Dutch auctions, or help platform designers determine performance parameters like block times.

Subject Classification

ACM Subject Classification
  • Applied computing → Online auctions
Keywords
  • Dutch auctions
  • blockchain
  • decentralized finance

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