IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2311.05234.html
   My bibliography  Save this paper

Intermediating DFMM Asset (IDA)

Author

Listed:
  • Arman Abgaryan
  • Utkarsh Sharma

Abstract

The Dynamic Function Market Maker (DFMM) introduced a fully automated framework for operating a multi-asset market, wherein an algorithmic accounting asset was used to connect different liquidity pools and ensure efficient rebalancing of risks, and internal accounting processes. In the DFMM design, this asset was not tradaeble; however, in this work, we explore the characteristics of this asset, if it were to be made tradeable. Named the Intermediating DFMM Asset (IDA), this asset serves as a unit of account in cross-chain finance, functioning as an intermediating asset for predictable budgeting, and efficient multichain transfers and settlements. Harnessing its robust liquidity as the key counterpart asset in DFMM, it achieves capital efficiency through the strategic repurposing of its asset base, while simultaneously mitigating risk via the dynamic optimisation of its multicollateral foundation. We outline key characteristics of the proposed asset, unique risk mitigation aspects enabled by the adopting AMM (DFMM), and control levers enabling the protocol's tactical asset and liability management toolkit to harmonise the asset's objectives with its real-world realisation, through a novel prudential market operation to incentivise productive use of a finite asset and dynamic AMM fee to ensure alignment of behaviours. The proposed design has the potential to harmonise the interests of diverse market participants, leading to synergetic reactions to informational flow, aiding IDA protocol in achieving its objectives.

Suggested Citation

  • Arman Abgaryan & Utkarsh Sharma, 2023. "Intermediating DFMM Asset (IDA)," Papers 2311.05234, arXiv.org.
    • Handle: RePEc:arx:papers:2311.05234
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2311.05234
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Arman Abgaryan & Utkarsh Sharma, 2023. "Dynamic Function Market Maker," Papers 2307.13624, arXiv.org.
    2. Briola, Antonio & Vidal-Tomás, David & Wang, Yuanrong & Aste, Tomaso, 2023. "Anatomy of a Stablecoin’s failure: The Terra-Luna case," Finance Research Letters, Elsevier, vol. 51(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonio Briola & Silvia Bartolucci & Tomaso Aste, 2024. "Deep Limit Order Book Forecasting," Papers 2403.09267, arXiv.org, revised Mar 2024.
    2. Raphael Auer & Bernhard Haslhofer & Stefan Kitzler & Pietro Saggese & Friedhelm Victor, 2023. "The Technology of Decentralized Finance (DeFi)," BIS Working Papers 1066, Bank for International Settlements.
    3. Bennett, Donyetta & Mekelburg, Erik & Williams, T.H., 2023. "BeFi meets DeFi: A behavioral finance approach to decentralized finance asset pricing," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. José Almeida & Tiago Cruz Gonçalves, 2023. "A Decade of Cryptocurrency Investment Literature: A Cluster-Based Systematic Analysis," IJFS, MDPI, vol. 11(2), pages 1-20, May.
    5. Bank for International Settlements, 2024. "The economic implications of services in the metaverse," BIS Papers, Bank for International Settlements, number 144.
    6. Ravi Kashyap, 2023. "DeFi Security: Turning The Weakest Link Into The Strongest Attraction," Papers 2312.00033, arXiv.org.
    7. Piñeiro-Chousa, Juan & Šević, Aleksandar & González-López, Isaac, 2023. "Impact of social metrics in decentralized finance," Journal of Business Research, Elsevier, vol. 158(C).
    8. Gordon, Steven & Li, Zhi & Marthinsen, John, 2023. "A deep analysis of the economics and finance research on cryptocurrencies," Economics Letters, Elsevier, vol. 228(C).
    9. David Vidal-Tom'as & Antonio Briola & Tomaso Aste, 2023. "FTX's downfall and Binance's consolidation: The fragility of centralised digital finance," Papers 2302.11371, arXiv.org, revised Dec 2023.

    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:arx:papers:2311.05234. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    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.