DeFinetti: Simulating a Dynamic Liquidity Provision Strategy for Uniswap v3

Описание: [AI in DeFi]

Decentralized Finance (DeFi) is the latest frontier in Quantitative Finance. It is built on top of blockchains and offers innovative financial products and services on the peer-to-peer network. The value of digital assets locked into the DeFi space grew to $80 billion in 2021 from $700 million in 2019.

Concentrated liquidity, a novel automated market maker (AMM) feature introduced in the latest version of the Uniswap decentralized exchange (DEX), allows liquidity providers to maximize their capital efficiency with a minimum capital requirement.

Nevertheless, the protocol's increased complexity now requires a high degree of quantitative and engineering expertise in order to continually provide liquidity on the exchange. In fact, the most assured way to stably earn swap fees from highly volatile asset pairs traded on the exchange is to develop an algorithmic trading system.

Fortunately for developers, the protocol's mechanism design allows one to convert the (infeasible) price prediction problem into a stochastic optimal control problem in a mostly stationary environment. Liquidity provision on the exchange will therefore be dominated by artificial intelligence within a few years, just like the equity and futures markets were dominated by technologically advanced HFTs in early 2010's.