2022/08/04 by Xi Chen, Khakhar, Adam, Chen, Xi · 7 citations
Economics, Econometrics and Finance · #Accounting liquidity #Business #Computational Engineering #Economic theories and models #Economics #F.m #FOS: Computer and information sciences #FOS: Economics and business #Finance #Financial Markets and Investment Strategies #Financial economics #Hedge #Hedge fund #Liquidity crisis #Liquidity premium #Liquidity risk #Machine Learning (cs.LG) #Market impact #Market liquidity #Market microstructure #Marketing #Metric (unit) #Monetary economics #Order (exchange) #Position (finance) #Stochastic processes and financial applications #Trading and Market Microstructure (q-fin.TR) #and Science (cs.CE)
paper · pdf · doi:10.48550/arxiv.2208.03318
published in arXiv (Cornell University) (Cornell University)
openalex publication_date 2022/08/04 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/08
Liquidity Providers on Automated Market Makers generate millions of USD in transaction fees daily. However, the net value of a Liquidity Position is vulnerable to price changes in the underlying assets in the pool. The dominant measure of loss in a Liquidity Position is Impermanent Loss. Impermanent Loss for Constant Function Market Makers has been widely studied. We propose a new metric to measure Liquidity Position PNL based on price movement from the underlying assets. We show how this new metric more appropriately measures the change in the net value of a Liquidity Position as a function of price movement in the underlying assets. Our second contribution is an algorithm to delta hedge arbitrary Liquidity Positions on both uniform liquidity Automated Market Makers (such as Uniswap v2) and concentrated liquidity Automated Market Makers (such as Uniswap v3) via a combination of derivatives.