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| Natura: | Preprint |
| Pubblicazione: |
2026
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| Accesso online: | https://arxiv.org/abs/2602.09887 |
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| _version_ | 1866911438023426048 |
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| author | Ko, Sunghun |
| author_facet | Ko, Sunghun |
| contents | We introduce a new class of automated market maker (AMM), the \emph{partially active automated market maker} (PA-AMM). PA-AMM divides its reserves into two parts, the active and the passive parts, and uses only the active part for trading. At the top of every block, such a division is done again to keep the active reserves always being \(λ\)-portion of total reserves, where \(λ\in (0, 1]\) is an activeness parameter. We show that this simple mechanism reduces adverse selection costs, measured by loss-versus-rebalancing (LVR), and thereby improves the wealth of liquidity providers (LPs) relative to plain constant-function market makers (CFMMs). As a trade-off, the asset weights within a PA-AMM pool may deviate from their target weights implied by its invariant curve. Motivated by the optimal index-tracking problem literature, we also propose and solve an optimization problem that balances such deviation and the reduction of LVR. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2602_09887 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Partially Active Automated Market Makers Ko, Sunghun Mathematical Finance We introduce a new class of automated market maker (AMM), the \emph{partially active automated market maker} (PA-AMM). PA-AMM divides its reserves into two parts, the active and the passive parts, and uses only the active part for trading. At the top of every block, such a division is done again to keep the active reserves always being \(λ\)-portion of total reserves, where \(λ\in (0, 1]\) is an activeness parameter. We show that this simple mechanism reduces adverse selection costs, measured by loss-versus-rebalancing (LVR), and thereby improves the wealth of liquidity providers (LPs) relative to plain constant-function market makers (CFMMs). As a trade-off, the asset weights within a PA-AMM pool may deviate from their target weights implied by its invariant curve. Motivated by the optimal index-tracking problem literature, we also propose and solve an optimization problem that balances such deviation and the reduction of LVR. |
| title | Partially Active Automated Market Makers |
| topic | Mathematical Finance |
| url | https://arxiv.org/abs/2602.09887 |