IDEAS home Printed from https://ideas.repec.org/a/ucp/jpemic/doi10.1086-732831.html
   My bibliography  Save this article

Coexisting Exchange Platforms: Limit Order Books and Automated Market Makers

Author

Listed:
  • Jun Aoyagi
  • Yuki Ito

Abstract

Blockchain-based decentralized exchanges have adopted automated market makers (AMMs)—algorithms that aggregate liquidity and automatically set asset prices. This paper analyzes coexisting market structures—a limit order book (LOB) and an AMM—to investigate their interactions in terms of liquidity. Based on their fundamental design differences, we show that fluctuations in liquidity in the AMM stimulate disproportionate reactions from informed and noise traders, leading to a positive spillover effect on liquidity in the LOB market. Furthermore, unlike models that focus primarily on the AMM, the coexisting environment leads to a hump-shaped reaction of liquidity supply in the AMM to asset volatility.

Suggested Citation

  • Jun Aoyagi & Yuki Ito, 2025. "Coexisting Exchange Platforms: Limit Order Books and Automated Market Makers," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 3(3), pages 611-648.
    • Handle: RePEc:ucp:jpemic:doi:10.1086/732831
    DOI: 10.1086/732831
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/732831
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/732831
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/732831?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jpemic:doi:10.1086/732831. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JPEMI .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.