IDEAS home Printed from https://ideas.repec.org/p/bca/bocadp/24-12.html
   My bibliography  Save this paper

The Ecology of Automated Market Makers

Author

Listed:
  • Annetta Ho
  • Cosmin Cazan
  • Andrew Schrumm

Abstract

This paper describes the ecology of automated market makers (AMMs), which are the most popular decentralized exchange model for the pricing and trading of crypto assets within decentralized finance. We use blockchain data to identify trends in user adoption and trading volumes of AMMs. Given the range of AMMs available and the diversity of their designs, we perform case studies on four platforms—Uniswap, Curve, Sushiswap and Balancer—to represent the AMM market. We describe the designs of these four AMMs in terms of their products or services, governance, incentives for participation and risks. Finally, we describe the characteristics of AMMs that require considerations with respect to the application of a regulatory framework to AMMs. Findings are presented for information and do not represent any formal legal analysis or opinion.

Suggested Citation

  • Annetta Ho & Cosmin Cazan & Andrew Schrumm, 2024. "The Ecology of Automated Market Makers," Discussion Papers 2024-12, Bank of Canada.
    • Handle: RePEc:bca:bocadp:24-12
    DOI: 10.34989/sdp-2024-12
    as

    Download full text from publisher

    File URL: https://doi.org/10.34989/sdp-2024-12
    File Function: Abstract
    Download Restriction: no
    File URL: https://www.bankofcanada.ca/wp-content/uploads/2024/07/sdp2024-12.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.34989/sdp-2024-12?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
    ---><---

    References listed on IDEAS

    as
    1. Lioba Heimbach & Ye Wang & Roger Wattenhofer, 2021. "Behavior of Liquidity Providers in Decentralized Exchanges," Papers 2105.13822, arXiv.org, revised Oct 2021.
    2. Vijay Mohan, 2022. "Automated market makers and decentralized exchanges: a DeFi primer," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-48, December.
    3. Agostino Capponi & Ruizhe Jia, 2021. "The Adoption of Blockchain-based Decentralized Exchanges," Papers 2103.08842, arXiv.org, revised Jul 2021.
    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. Philippe Bergault & Louis Bertucci & David Bouba & Olivier Gu'eant, 2022. "Automated Market Makers: Mean-Variance Analysis of LPs Payoffs and Design of Pricing Functions," Papers 2212.00336, arXiv.org, revised Nov 2023.
    2. Marcin Wk{a}torek & Marcin Kr'olczyk & Jaros{l}aw Kwapie'n & Tomasz Stanisz & Stanis{l}aw Dro.zd.z, 2024. "Approaching multifractal complexity in decentralized cryptocurrency trading," Papers 2411.05951, arXiv.org.
    3. Farag, Hisham & Luo, Di & Yarovaya, Larisa & Zieba, Damian, 2025. "Returns from liquidity provision in cryptocurrency markets," Journal of Banking & Finance, Elsevier, vol. 175(C).
    4. Arman Abgaryan & Utkarsh Sharma, 2023. "Dynamic Function Market Maker," Papers 2307.13624, arXiv.org.
    5. Andrea Canidio & Robin Fritsch, 2023. "Arbitrageurs' profits, LVR, and sandwich attacks: batch trading as an AMM design response," Papers 2307.02074, arXiv.org, revised Feb 2025.
    6. Marcello Monga, 2024. "Automated Market Making and Decentralized Finance," Papers 2407.16885, arXiv.org.
    7. Thanos Drossos & Daniel Kirste & Niclas Kannengie{ss}er & Ali Sunyaev, 2025. "Automated Market Makers: Toward More Profitable Liquidity Provisioning Strategies," Papers 2501.07828, arXiv.org.
    8. Eduard Hartwich & Alexander Rieger & Johannes Sedlmeir & Dominik Jurek & Gilbert Fridgen, 2023. "Machine economies," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-13, December.
    9. Arman Abgaryan & Utkarsh Sharma, 2024. "IntraLayer: A Platform of Digital Finance Platforms," Papers 2412.07348, arXiv.org.
    10. Son, Bumho & Lee, Yunyoung & Jang, Huisu, 2025. "A two-stage game model of probabilistic price manipulation in decentralized exchanges," Economic Modelling, Elsevier, vol. 147(C).
    11. Matthias Nadler & Felix Bekemeier & Fabian Schar, 2022. "DeFi Risk Transfer: Towards A Fully Decentralized Insurance Protocol," Papers 2212.10308, arXiv.org.
    12. Masaaki Fukasawa & Basile Maire & Marcus Wunsch, 2025. "Liquidity provision of utility indifference type in decentralized exchanges," Digital Finance, Springer, vol. 7(2), pages 255-273, June.
    13. Philippe Bergault & Louis Bertucci & David Bouba & Olivier Guéant, 2024. "Automated market makers: mean-variance analysis of LPs payoffs and design of pricing functions," Digital Finance, Springer, vol. 6(2), pages 225-247, June.
    14. Raphael Auer & Bernhard Haslhofer & Stefan Kitzler & Pietro Saggese & Friedhelm Victor, 2024. "The technology of decentralized finance (DeFi)," Digital Finance, Springer, vol. 6(1), pages 55-95, March.
    15. Erdong Chen & Mengzhong Ma & Zixin Nie, 2024. "Exploring the Impact: How Decentralized Exchange Designs Shape Traders' Behavior on Perpetual Future Contracts," Papers 2402.03953, arXiv.org, revised Apr 2024.
    16. Fabi, Michele & Prat, Julien, 2025. "The economics of Constant Function Market Makers," Journal of Corporate Finance, Elsevier, vol. 91(C).
    17. Ravi Kashyap, 2024. "The Concentration Risk Indicator: Raising the Bar for Financial Stability and Portfolio Performance Measurement," Papers 2408.07271, arXiv.org.
    18. Maxim Bichuch & Zachary Feinstein, 2022. "Axioms for Automated Market Makers: A Mathematical Framework in FinTech and Decentralized Finance," Papers 2210.01227, arXiv.org, revised Feb 2025.
    19. Dev Churiwala & Bhaskar Krishnamachari, 2022. "QLAMMP: A Q-Learning Agent for Optimizing Fees on Automated Market Making Protocols," Papers 2211.14977, arXiv.org.
    20. Chemaya, Nir & Liu, Dingyue, 2024. "The suitability of using Uniswap V2 model to analyze V3 data," Finance Research Letters, Elsevier, vol. 59(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:bca:bocadp:24-12. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    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.