Automated Market Makers: Toward More Profitable Liquidity Provisioning Strategies
Fuente:
arXiv
Saved in:
| Main Authors: | , , , |
|---|---|
| Format: | Preprint |
| Published: |
2025
|
| Subjects: | |
| Online Access: | |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1866916565844230144 |
|---|---|
| author | Drossos, Thanos Kirste, Daniel Kannengießer, Niclas Sunyaev, Ali |
| author_facet | Drossos, Thanos Kirste, Daniel Kannengießer, Niclas Sunyaev, Ali |
| contents | To trade tokens in cryptoeconomic systems, automated market makers (AMMs) typically rely on liquidity providers (LPs) that deposit tokens in exchange for rewards. To profit from such rewards, LPs must use effective liquidity provisioning strategies. However, LPs lack guidance for developing such strategies, which often leads them to financial losses. We developed a measurement model based on impermanent loss to analyze the influences of key parameters (i.e., liquidity pool type, position duration, position range size, and position size) of liquidity provisioning strategies on LPs' returns. To reveal the influences of those key parameters on LPs' profits, we used the measurement model to analyze 700 days of historical liquidity provision data of Uniswap v3. By uncovering the influences of key parameters of liquidity provisioning strategies on profitability, this work supports LPs in developing more profitable strategies. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2501_07828 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Automated Market Makers: Toward More Profitable Liquidity Provisioning Strategies Drossos, Thanos Kirste, Daniel Kannengießer, Niclas Sunyaev, Ali Trading and Market Microstructure To trade tokens in cryptoeconomic systems, automated market makers (AMMs) typically rely on liquidity providers (LPs) that deposit tokens in exchange for rewards. To profit from such rewards, LPs must use effective liquidity provisioning strategies. However, LPs lack guidance for developing such strategies, which often leads them to financial losses. We developed a measurement model based on impermanent loss to analyze the influences of key parameters (i.e., liquidity pool type, position duration, position range size, and position size) of liquidity provisioning strategies on LPs' returns. To reveal the influences of those key parameters on LPs' profits, we used the measurement model to analyze 700 days of historical liquidity provision data of Uniswap v3. By uncovering the influences of key parameters of liquidity provisioning strategies on profitability, this work supports LPs in developing more profitable strategies. |
| title | Automated Market Makers: Toward More Profitable Liquidity Provisioning Strategies |
| topic | Trading and Market Microstructure |
| url | https://arxiv.org/abs/2501.07828 |