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Multi-Currency AMMs for Decentralized FOREX Markets: Feasibility & Optimal Design

Authors Reina Ke Xin Li , Andreas Park , Andreas Veneris , Srisht Fateh Singh

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  • Applied computing → Economics
Keywords
  • automated market makers
  • decentralized finance
  • currency foreign exchange

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Abstract

Most currency pairs lack a direct liquid market, so international foreign exchange relies on routing transactions through a dominant vehicle currency. Multi-currency automated market makers (AMMs) offer an alternative by sharing liquidity across many currency pairs, facilitating direct cross-currency trade while exploiting liquidity consolidation. This paper studies a multi-currency pool design that minimizes trading cost. Under a constant-mean AMM architecture, equilibrium trading costs reflect the trade-off between reduced price impact from consolidated liquidity and increased impermanent loss from joint return risk. This work derives closed-form costs, characterizes optimal pool weights, and shows that the optimized multi-currency pool dominates the status quo over a range of market parameters. It then formulates the system-level problem of partitioning currencies into multi-currency pools, which is solved using a hierarchical agglomerative clustering algorithm. Empirically, using exchange rate and trade data for 43 currencies over 2008-2023, the algorithm runs in 1.6 seconds and produces pools with geographic and economic structure. Notably, this reduces realized costs by 13% relative to the status quo of vehicle-currency routing, with gains stable through episodes of global financial stress.

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Reina Ke Xin Li, Andreas Park, Andreas Veneris, and Srisht Fateh Singh. Multi-Currency AMMs for Decentralized FOREX Markets: Feasibility & Optimal Design. In 8th Conference on Advances in Financial Technologies (AFT 2026). Leibniz International Proceedings in Informatics (LIPIcs), Volume 395, pp. 13:1-13:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2026) https://doi.org/10.4230/LIPIcs.AFT.2026.13

Author Details

Reina Ke Xin Li
  • University of Toronto, Canada
Andreas Park
  • University of Toronto, Canada
Andreas Veneris
  • University of Toronto, Canada
Srisht Fateh Singh
  • University of Toronto, Canada

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