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arXiv · 2203.11352

A General Framework for Impermanent Loss in Automated Market Makers

Neelesh Tiruviluamala·Alexander Port·Erik Lewis
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Abstract

We provide a framework for analyzing impermanent loss for general Automated Market Makers (AMMs) and show that Geometric Mean Market Makers (G3Ms) are in a rigorous sense the simplest class of AMMs from an impermanent loss viewpoint. In this context, it becomes clear why automated market makers like Curve ([Ego19]) require more parameters in order to specify impermanent loss. We suggest the proper parameter space on which impermanent loss should be considered and prove results that help in understanding the impermanent loss characteristics of different AMMs.

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Neelesh Tiruviluamala, Alexander Port, Erik Lewis. 2022-03-21. A General Framework for Impermanent Loss in Automated Market Makers. https://arxiv.org/abs/2203.11352

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