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Configurable arbitrage and slippage in automated market making systems

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  • Condie, Scott

Abstract

This paper studies the constant elasticity pricing function, a generalization of the typical constant product pricing function used in automated market making exchanges like Uniswap. This generalization allows for oracle-based, arbitrage-free pricing, as well as configurable liquidity. Each of these possibilities come with trade-offs that are discussed, including the competitive environments in which this increased flexibility is desirable.

Suggested Citation

  • Condie, Scott, 2025. "Configurable arbitrage and slippage in automated market making systems," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325008748
    DOI: 10.1016/j.frl.2025.107615
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    References listed on IDEAS

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    1. Jiahua Xu & Krzysztof Paruch & Simon Cousaert & Yebo Feng, 2021. "SoK: Decentralized Exchanges (DEX) with Automated Market Maker (AMM) Protocols," Papers 2103.12732, arXiv.org, revised Mar 2023.
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    4. Andreas Park, 2023. "The Conceptual Flaws of Decentralized Automated Market Making," Management Science, INFORMS, vol. 69(11), pages 6731-6751, November.
    5. Robin Hanson, 2007. "Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 3-15, February.
    6. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
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