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DOI: 10.4230/LIPIcs.AFT.2026.14

Uniform-Loss Automated Market Making for Prediction Markets (Extended Abstract)

Authors: Ciamac C. Moallemi, Dan Robinson, and Brian Zhu

Published in: LIPIcs, Volume 395, 8th Conference on Advances in Financial Technologies (AFT 2026)

Abstract

Automated market makers (AMMs) for prediction markets descend from market scoring rules, where a mechanism operator subsidizes a market to aggregate beliefs about uncertain events. The existing literature has focused on bounding the total worst-case loss to the subsidizer, but has not addressed how that loss is distributed across price states or over time. We use the framework of loss-versus-rebalancing (LVR) to study this distribution and introduce uniform AMMs, defined by the property that instantaneous LVR is proportional to pool value and independent of the current token price. In a static setting, we show that for a broad class of win-martingales - processes that converge to 0 or 1 at a fixed resolution time - there exists a pricing function that achieves uniform LVR under that process, and conversely, that any sufficiently regular pricing function induces a win-martingale under which it is uniform. We then extend the framework to dynamic liquidity management, showing that liquidity levels can be adjusted over time to implement a prescribed target expected cumulative loss schedule. This theory is illustrated with canonical examples of win-martingales and pricing functions. Our results can inform AMM designers and liquidity providers on how the inevitable cost of subsidizing price discovery can be shaped and controlled across both price and time.

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Ciamac C. Moallemi, Dan Robinson, and Brian Zhu. Uniform-Loss Automated Market Making for Prediction Markets (Extended Abstract). In 8th Conference on Advances in Financial Technologies (AFT 2026). Leibniz International Proceedings in Informatics (LIPIcs), Volume 395, pp. 14:1-14:3, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2026)

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@InProceedings{moallemi_et_al:LIPIcs.AFT.2026.14,
  author =	{Moallemi, Ciamac C. and Robinson, Dan and Zhu, Brian},
  title =	{{Uniform-Loss Automated Market Making for Prediction Markets}},
  booktitle =	{8th Conference on Advances in Financial Technologies (AFT 2026)},
  pages =	{14:1--14:3},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-451-2},
  ISSN =	{1868-8969},
  year =	{2026},
  volume =	{395},
  editor =	{Kiayias, Aggelos and Kyropoulou, Maria},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2026.14},
  URN =		{urn:nbn:de:0030-drops-278684},
  doi =		{10.4230/LIPIcs.AFT.2026.14},
  annote =	{Keywords: Prediction markets, automated market makers, loss-versus-rebalancing, win-martingales, liquidity provision}
}

Document

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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Documents authored by Robinson, Dan

Uniform-Loss Automated Market Making for Prediction Markets (Extended Abstract)

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

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