Slippage in AMM Markets

16 Pages Posted: 16 Jun 2022 Last revised: 27 Jul 2022

See all articles by Irene Aldridge

Irene Aldridge

AbleMarkets.com; Cornell University; Able Blox

Date Written: July 27, 2022

Abstract

The crypto market is growing at an unprecedented rate, but it can be difficult to make money in this market if you don't understand how it works. Most people are still using traditional methods to trade in the crypto market, which can lead to losses due to significantly adverse pricing, known as slippage. In this paper, we 1) explain the key differences between Automated Market Making (AMM) used in crypto trading and traditional limit-order book-based market making, 2) show crypto price formation step-by-step, and 3) derive a closed-form solution for ex-ante crypto slippage estimation that can be used to extract better profits from crypto trading.

Keywords: AMM, Crypto, Market-making, trading, liquidity, slippage

JEL Classification: D02, C6, C7, C8

Suggested Citation

Aldridge, Irene, Slippage in AMM Markets (July 27, 2022). Available at SSRN: https://ssrn.com/abstract=4133897 or http://dx.doi.org/10.2139/ssrn.4133897

Irene Aldridge (Contact Author)

AbleMarkets.com ( email )

New York, NY 10128
United States

HOME PAGE: http://www.AbleMarkets.com

Cornell University ( email )

Ithaca, NY 14853
United States

Able Blox ( email )

New York, NY

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
603
Abstract Views
1,773
Rank
85,794
PlumX Metrics