Automated Market Makers: A Practical Guide to Decentralized Exchanges and Cryptocurrency Trading

ISBN-13: 9781484286159 / Angielski / Miękka / 2023 / 293 str.

Miguel Ottina; Peter Johannes Steffensen; Jesper Kristensen

Opis

Explore Automated Market Makers (AMMs), the underlying protocols used by decentralized exchanges (DEX) to allow users to perform trades of cryptocurrencies in a decentralized way with no middlemen. This book provides a thorough study and a clear-cut exposition of the principal AMMs (Uniswap v2 and v3, Balancer, and Curve).

You'll receive a detailed description of how these AMMs work, unveiling the mathematics behind them and showing plenty of examples as well as novel proofs for several interesting facts. Each chapter describes an AMM's core idea and derives the mathematical formulas used in the code, giving careful explanations of the logical thinking involved and detailing the steps needed to reach those formulas. All these explanations are complemented with thoughtfully chosen examples which further help to enlighten the readers on how the formulae work. In addition, the relevant parts of the codes of the AMMs are shown after explaining each formula so that the actual implementation of the formulae can be seen.

In a traditional trading market a buy order has to be matched with a sell order to achieve a trade. However, for an AMM, users trade against the protocol itself, a smart contract, or a community pool of funds. In simple terms this is an open source computer program in which mathematical formulas define prices. Automated Market Makers examines this critical point revealing that no banks or intermediaries are necessary, giving crucial financial access to a much larger crowd, regardless of who they are with less barriers to access.

What You'll Learn

• Understand the principals of decentralized finance (DeFi)
  
• Grasp mathematical formulae that underpin decentralized exchanges
• Work with Solidity programming language
• Review current industry best practices 

Who This Book Is For

• Those new to Blockchain and Cryptocurrency trading, who want to learn more about AMMs
• Developers who want to dive deeper into the core features of AMM platforms
• Investors and venture capitalists who want to know more about new emerging technologies

Spis treści

Chapter 1: Introduction to Automated Market Makers 

1.1. Introduction to  Decentralized Finance (DeFi) 

1.2.  What is  an Automated Market Maker (AMM)

1.3.  Decentralized Exchanges (DEX)

1.4.  Liquidity Pools

Chapter 2: Uniswap v2

1.1 Introduction

1.2 Trading perspective

1.3 Providing liquidity

1.4 Optimal routing among DEX’s

Chapter 3: Balancer

2.1 The Constant Value Function

2.2 Spot price

2.3 Trading formulas

2.4 All-asset deposit

2.5 Single-asset deposit

2.6 All-asset withdrawal

2.7 Single-asset withdrawal

2.8 Pool tokens swap

Chapter 4: Curve Finance

3.1 Introduction

3.2 Mathematical preliminaries

3.3 Trading formulas

3.4 All-asset deposit

3.5 All-asset withdrawal

3.6 Single-asset withdrawal

3.7 Curve LP token swap

Chapter 5: Uniswap v3

4.1 Introduction

4.2 Ticks

4.3 Concentrated liquidity

4.4 LP position value

4.5 Impermanent loss

4.6 Position minting

4.7 Uniswap v3 position vs. short put options

O autorze

Miguel Ottina is a Mathematician born and raised in Buenos Aires. He obtained a degree in Mathematics in 2005 and a Ph.D. in Mathematics in 2009, both from the University of Buenos Aires, and worked as a Professor for many years. He has published several peer-reviewed academic articles and has given more than fifteen conference presentations.

In February 2022, he started working in the Web3 industry, ap- plying his mathematical knowledge and expertise to the cutting- edge field of cryptocurrencies and Decentralized Finance, and he has already become an expert in Automated Market Makers. After finding out that the literature on Automated Market Makers is frequently incomplete and not precise, he decided to write this book with Peter and Jesper so as to provide newcomers with a friendly, clear, and thorough explanation of the primary Automated Market Makers, and to offer developers a solid, broad and profound exposition which will allow them to gain a deeper understanding in order to continue building.

Peter Johannes Steffensen is a Mathematician holding a Ph.D. in Mathematics from the University of Aarhus. Since then, he has been working as a software architect in different financial institutions and has also had part-time university jobs. He has worked as a consultant in the Web3 space for over a year and saw there the perfect possibility to apply his mathematical knowledge and experience from the financial industry. His motivation for writing this book is to explain how the leading Automated Market Makers work and to provide a single point of entry for people that look for information on this topic.

Jesper Kristensen has worked in the Web3 space for years in both consulting and full-time capacities. Jesper holds a Ph.D. and two master’s degrees in Applied and Engineering Physics from Cornell University. Jesper worked four years at General Electric Research, publishing nine articles, one book chapter, and giving seventeen conference presentations and invited talks. Following this, he did stints in the Tech industry and Finance for three years, and has led a large Web3 Research department. His primary motivation for writing this book is twofold. First, when Jesper was first introduced to the Web3 space, he noticed that a lot of confusion about how Automated Market Makers worked circulated and that multiple people gave incorrect answers around their inner workings —and this book seeks to settle this type of conflicts. Second, he wants to offer a one-stop complete guide to learn about Automated Market Makers.

Blurb

Explore Automated Market Makers (AMMs), the underlying protocols used by decentralized exchanges (DEX) to allow users to perform trades of cryptocurrencies in a decentralized way with no middlemen. This book provides a thorough study and a clear-cut exposition of the principal AMMs (Uniswap v2 and v3, Balancer, and Curve).

You'll receive a detailed description of how these AMMs work, unveiling the mathematics behind them and showing plenty of examples as well as novel proofs for several interesting facts. Each chapter describes an AMM's core idea and derives the mathematical formulas used in the code, giving careful explanations of the logical thinking involved and detailing the steps needed to reach those formulas. All these explanations are complemented with thoughtfully chosen examples which further help to enlighten the readers on how the formulae work. In addition, the relevant parts of the codes of the AMMs are shown after explaining each formula so that the actual implementation of the formulae can be seen.

In a traditional trading market a buy order has to be matched with a sell order to achieve a trade. However, for an AMM, users trade against the protocol itself, a smart contract, or a community pool of funds. In simple terms this is an open source computer program in which mathematical formulas define prices. Automated Market Makers examines this critical point revealing that no banks or intermediaries are necessary, giving crucial financial access to a much larger crowd, regardless of who they are with less barriers to access.

You will:

• Understand the principals of decentralized finance (DeFi)
  
• Grasp mathematical formulae that underpin decentralized exchanges
• Work with Solidity programming language
• Review current industry best practices