Computer Science > Computational Engineering, Finance, and Science
arXiv:2501.12583 (cs)
[Submitted on 22 Jan 2025]
Title:Chasing price drains liquidity
View a PDF of the paper titled Chasing price drains liquidity, by Yizhou Cao and 3 other authors
View PDFHTML (experimental)Abstract:Assuming that the price in a Uniswap v3 style Automated Market Maker (AMM) follows a Geometric Brownian Motion (GBM), we prove that the strategy that adjusts the position of liquidity to track the current price leads to a deterministic and exponentially fast decay of liquidity. Next, assuming that there is a Centralized Exchange (CEX), in which the price follows a GBM and the AMM price mean reverts to the CEX price, we show numerically that the same strategy still leads to decay. Last, we propose a strategy that increases the liquidity even without compounding fees earned through liquidity provision.
| Subjects: | Computational Engineering, Finance, and Science (cs.CE) |
| Cite as: | arXiv:2501.12583 [cs.CE] |
| (orarXiv:2501.12583v1 [cs.CE] for this version) | |
| https://doi.org/10.48550/arXiv.2501.12583 arXiv-issued DOI via DataCite |
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View a PDF of the paper titled Chasing price drains liquidity, by Yizhou Cao and 3 other authors
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