This is the second post in our series on designing a low-toxicity automated market-maker. Other posts in this series: part one. — Introduction From a trader’s point view, the main function that an AMM offers is a simple swap, that is, trading some amount of one token for another. At a basic level, the protocol needs to answer the following two questions: How is the execution price determined for a given swap?

In this series of posts, we suggest a design for a new low-toxicity AMM. Other parts: part two. — Introduction When the order flow is toxic (that is, dominated by informed arbitrageurs), liquidity providers on average lose money. According to several studies (one, two), this is currently the case for the largest decentralized exchange protocol, Uniswap v3. The solution to this problem is to attract a higher volume of regular…

How can one make a decentralized exchange protocol friendly to large non-arbitrage traders and liquidity providers rather than arbitrage traders alone? In this last post of our series, co-written with Polina Nezlobina and Nikita Zinoviev, we lay out several design principles for protocols seeking to achieve this goal. We build on the ideas discussed in parts one, two, and three of the series. — Introduction

This is the third post in our series, co-written with Polina Nezlobina and Nikita Zinoviev, on order flow toxicity on decentralized exchanges. Read the other parts here: part one (on the execution strategies for large orders), part two (on execution with market orders on Uniswap v3), part four (solving order flow toxicity). — Introduction There are no true limit orders on Uniswap v3. However, the docs say that some limit orders can be replicated with short-range LP positions. A study by CrocSwap estimates that such synthetic limit orders constitute close to 20% of the overall positions.

This is the second post in our series, co-written with Polina Nezlobina and Nikita Zinoviev, on order flow toxicity on decentralized exchanges. For other posts in this series, see: part one (on execution strategies for large orders), part three (on execution with Uniswap range orders), part four (solving order flow toxicity). — Introduction In our first post, we discussed two strategies that regular, non-arbitrage, traders can use to execute large swaps on centralized exchanges. The first strategy is to split a large order into several small market orders and execute them gradually over time. With this approach, the trader tries to take only…

In this series of posts, co-written with Polina Nezlobina and Nikita Zinoviev, we discuss the main issue faced by decentralized exchanges — order flow toxicity. Other posts in this series: part two, part three, part four. — Introduction When the order flow is toxic, that is, dominated by arbitrageurs, liquidity providers (LPs) earn low or negative returns on their investment. We will explore the root causes of order flow toxicity and discuss potential solutions to this problem. Our discussion will mostly focus on the current market leader, Uniswap…