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SoK: Decentralized Exchanges (DEX) with Automated Market Maker (AMM) Protocols

Author

Listed:
  • Jiahua Xu
  • Krzysztof Paruch
  • Simon Cousaert
  • Yebo Feng

Abstract

As an integral part of the decentralized finance (DeFi) ecosystem, decentralized exchanges (DEXs) with automated market maker (AMM) protocols have gained massive traction with the recently revived interest in blockchain and distributed ledger technology (DLT) in general. Instead of matching the buy and sell sides, automated market makers (AMMs) employ a peer-to-pool method and determine asset price algorithmically through a so-called conservation function. To facilitate the improvement and development of automated market maker (AMM)-based decentralized exchanges (DEXs), we create the first systematization of knowledge in this area. We first establish a general automated market maker (AMM) framework describing the economics and formalizing the system's state-space representation. We then employ our framework to systematically compare the top automated market maker (AMM) protocols' mechanics, illustrating their conservation functions, as well as slippage and divergence loss functions. We further discuss security and privacy concerns, how they are enabled by automated market maker (AMM)-based decentralized exchanges (DEXs)' inherent properties, and explore mitigating solutions. Finally, we conduct a comprehensive literature review on related work covering both decentralized finance (DeFi) and conventional market microstructure.

Suggested Citation

  • 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.
    • Handle: RePEc:arx:papers:2103.12732
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Xue Dong He & Chen Yang & Yutian Zhou, 2024. "Optimal Design of Automated Market Makers on Decentralized Exchanges," Papers 2404.13291, arXiv.org, revised Nov 2024.
    2. Haonan Xu & Alessio Brini, 2025. "Improving DeFi Accessibility through Efficient Liquidity Provisioning with Deep Reinforcement Learning," Papers 2501.07508, arXiv.org.
    3. Yu Zhang & Zichen Li & Tao Yan & Qianyu Liu & Nicolo Vallarano & Claudio Tessone, 2024. "Profit Maximization In Arbitrage Loops," Papers 2406.16600, arXiv.org.
    4. Sascha Hägele, 2024. "Centralized exchanges vs. decentralized exchanges in cryptocurrency markets: A systematic literature review," Electronic Markets, Springer;IIM University of St. Gallen, vol. 34(1), pages 1-21, December.
    5. 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.
    6. Werner Brönnimann & Pascal Egloff & Thomas Krabichler, 2024. "Automated market makers and their implications for liquidity providers," Digital Finance, Springer, vol. 6(3), pages 573-604, September.
    7. 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.
    8. Abrar Rahman & Victor Shi & Matthew Ding & Elliot Choi, 2022. "Systematization of Knowledge: Synthetic Assets, Derivatives, and On-Chain Portfolio Management," Papers 2209.09958, arXiv.org.
    9. DUGULEANĂ Andreea Raluca & TĂNĂSESCU Cristina Roxana & DUGULEANĂ Mihai, 2024. "A New Approach To Create Sustained Ponzi-Like Systems By Incorporating Perpetual Liquidity And Time Epochs," Management of Sustainable Development, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 16(1), pages 37-44, June.
    10. Jiahua Xu & Yebo Feng, 2022. "Reap the Harvest on Blockchain: A Survey of Yield Farming Protocols," Papers 2210.04194, arXiv.org, revised Dec 2022.
    11. Viraj Nadkarni & Sanjeev Kulkarni & Pramod Viswanath, 2024. "Adaptive Curves for Optimally Efficient Market Making," Papers 2406.13794, arXiv.org, revised Mar 2025.
    12. Junliang Luo & Stefan Kitzler & Pietro Saggese, 2024. "Investigating Similarities Across Decentralized Financial (DeFi) Services," Papers 2404.00034, arXiv.org.
    13. Sun, Yan & Yang, Sung-Byung, 2024. "Are ICOs the best? A comparison of different fundraising models in blockchain-based fundraising," Journal of Financial Stability, Elsevier, vol. 73(C).
    14. Simon Cousaert & Jiahua Xu & Toshiko Matsui, 2021. "SoK: Yield Aggregators in DeFi," Papers 2105.13891, arXiv.org, revised Mar 2022.
    15. Andrew W. Macpherson, 2023. "Adversarial blockchain queues and trading on a CFMM," Papers 2302.01663, arXiv.org, revised Feb 2023.
    16. Tobias Bitterli & Fabian Schar, 2023. "Decentralized Exchanges: The Profitability Frontier of Constant Product Market Makers," Papers 2302.05219, arXiv.org, revised Mar 2023.
    17. Yu Zhang & Tao Yan & Jianhong Lin & Benjamin Kraner & Claudio Tessone, 2024. "An Improved Algorithm to Identify More Arbitrage Opportunities on Decentralized Exchanges," Papers 2406.16573, arXiv.org.
    18. Alexander Maedche & Edona Elshan & Hartmut Höhle & Christiane Lehrer & Jan Recker & Ali Sunyaev & Benjamin Sturm & Oliver Werth, 2024. "Open Science," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 66(4), pages 517-532, August.
    19. Matteo Aquilina & Sean Foley & Leonardo Gambacorta & William Krekel, 2024. "Decentralised dealers? examining liquidity provision in decentralised exchanges," BIS Working Papers 1227, Bank for International Settlements.
    20. Daniel Kirste & Niclas Kannengie{ss}er & Ricky Lamberty & Ali Sunyaev, 2023. "Automated Market Makers in Cryptoeconomic Systems: A Taxonomy and Archetypes," Papers 2309.12818, arXiv.org, revised Mar 2025.
    21. Qin Wang & Guangsheng Yu & Shiping Chen, 2023. "Cryptocurrency in the Aftermath: Unveiling the Impact of the SVB Collapse," Papers 2311.10720, arXiv.org.
    22. Kenan Wood & Maurice Herlihy & Hammurabi Mendes & Jonad Pulaj, 2024. "Expiring Assets in Automated Market Makers," Papers 2401.04289, arXiv.org.
    23. Kensuke Ito, 2024. "Cryptoeconomics and Tokenomics as Economics: A Survey with Opinions," Papers 2407.15715, arXiv.org.
    24. Daniel Kirste & Alexander Poddey & Niclas Kannengießer & Ali Sunyaev, 2024. "On the influence of conventional and automated market makers on market quality in cryptoeconomic systems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 34(1), pages 1-18, December.
    25. Arman Abgaryan & Utkarsh Sharma, 2024. "IntraLayer: A Platform of Digital Finance Platforms," Papers 2412.07348, arXiv.org.

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