UAMM: UBET Automated Market Maker
Daniel Jiwoong Im Alexander Kondratskiy Vincent Harvey Hsuan-Wei Fu
Automated market makers (AMMs) are pricing mechanisms utilized by
decentralized exchanges (DEX). Traditional AMM approaches are constrained by
pricing solely based on their own liquidity pool, without consideration of
external markets or risk management for liquidity providers. In this paper, we
propose a new approach known as UBET AMM (UAMM), which calculates prices by
considering external market prices and the impermanent loss of the liquidity
pool. Despite relying on external market prices, our method maintains the
desired properties of a constant product curve when computing slippages. The
key element of UAMM is determining the appropriate slippage amount based on the
desired target balance, which encourages the liquidity pool to minimize
impermanent loss. We demonstrate that our approach eliminates arbitrage
opportunities when external market prices are efficient.