1 research outputs found
Decentralized Exchanges: The Profitability Frontier of Constant Product Market Makers
In this paper we analyze constant product market makers (CPMMs). We formalize
the liquidity providers' profitability conditions and introduce a concept we
call the profitability frontier in the xyk-space. We study the effect of mint
and burn fees on the profitability frontier, consider various pool types, and
compile a large data set from all Uniswap V2 transactions. We use this data to
further study our theoretical framework and the profitability conditions. We
show how the profitability of liquidity provision is severely affected by the
costs of mint and burn events relative to the portfolio size and the
characteristics of the trading pair