Abstract
Automated market makers (AMMs) are one of the most prominent decentralized
finance (DeFi) applications. AMMs allow users to trade different types of
crypto-tokens, without the need to find a counter-party. There are several
implementations and models for AMMs, featuring a variety of sophisticated
economic mechanisms. We present a theory of AMMs. The core of our theory is an
abstract operational model of the interactions between users and AMMs, which
can be concretised by instantiating the economic mechanisms. We exploit our
theory to formally prove a set of fundamental properties of AMMs,
characterizing both structural and economic aspects. We do this by abstracting
from the actual economic mechanisms used in implementations and identifying
sufficient conditions which ensure the relevant properties. Notably, we devise
a general solution to the arbitrage problem, the main game-theoretic foundation
behind the economic mechanisms of AMMs.
Original language | English |
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Article number | 12 |
Journal | Logical Methods in Computer Science |
Volume | 18 |
Issue number | 4 |
Number of pages | 46 |
ISSN | 1860-5974 |
DOIs | |
Publication status | Published - 2022 |