Automated Market Maker

Automated market makers (AMM) have grown to gain a significant market share within the cryptocurrency world, which has led to the proliferation of new products pursuing unique horizontal segmentation strategies. However, their theoretical features are remarkably similar when meeting a basic set of assumptions. In this paper, we begin by introducing a global approach to obtain funding formulae for AMMs. Next, we demonstrate the differences between the Version 1.0 and Version 2.0 of the Uniswap protocol. Continuing to examine the microstructure of the AMM market, we show how the indirect price effect translates into traders and the constant losses to investors. We continue to point out that chronic loss is your job both in terms of market volatility and depth and we discuss the implications of these findings within the context of the literature.