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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
    as

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    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)

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    More about this item

    Keywords

    Digital currencies and fintech; Financial markets; Financial stability; Financial system regulation and policies;
    All these keywords.

    JEL classification:

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

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    This paper has been announced in the following NEP Reports:

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