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DOI: 10.4230/LIPIcs.AFT.2024.18

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

Authors: Ciamac C. Moallemi and Dan Robinson

Published in: LIPIcs, Volume 316, 6th Conference on Advances in Financial Technologies (AFT 2024)

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.

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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)

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@InProceedings{moallemi_et_al:LIPIcs.AFT.2024.18,
  author =	{Moallemi, Ciamac C. and Robinson, Dan},
  title =	{{Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains}},
  booktitle =	{6th Conference on Advances in Financial Technologies (AFT 2024)},
  pages =	{18:1--18:17},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-345-4},
  ISSN =	{1868-8969},
  year =	{2024},
  volume =	{316},
  editor =	{B\"{o}hme, Rainer and Kiffer, Lucianna},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.18},
  URN =		{urn:nbn:de:0030-drops-209541},
  doi =		{10.4230/LIPIcs.AFT.2024.18},
  annote =	{Keywords: Dutch auctions, blockchain, decentralized finance}
}

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

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