ICES Experimental Economics Brown Bag Lecture

Modeling Automated Market Makers as a Microeconomic System

Thursday, October 14, 2021 12:00 PM to 1:00 PM
Online Location, Zoom Meeting

ICES Experimental Economics Brown Bag Lecture

The Interdisciplinary Center for Economic Science (ICES) presents an ICES Brown Bag Lecture featuring:

Sarah Sylvester

George Mason University

Modeling Automated Market Makers as a Microeconomic System

 

Please contact ICES Office Manager (sbahabib@gmu.edu) for Zoom link.

 

Abstract

Decentralized exchanges are an innovative method of trading in an online space, formed to allow the transfer of cryptocurrency between agents. They differ from centralized exchanges which can be cumbersome, due to the order book mechanism, and risky, since centralized exchanges require funds to be temporarily held by the centralized operator. With decentralized exchanges, digital coins and other property rights to various assets can be represented on blockchains, distributed immutable ledgers that record transactions. Despite potential advantages over centralized exchanges smart-contracts are still incomplete contracts, creating risk for agents when unanticipated events occur. Automated market makers (AMMs), which are digital asset holders (a type of smart-contract) that lock funds from users to hold liquidity, are a relatively new form of smart-contract for trading one cryptocurrency for another. This paper seeks to explore AMMs as microeconomic systems by developing computer agents, blockchain and AMM institutions, and a controlled environment to test the performance of AMMs, and mediating factors such as arbitrage and liquidity pools. We accomplish this by running simulations, controlling for agent incentives, strategies, and market liquidity levels.

 

For more information about the Brown Bag Lectures, please visit the Brown Bag Schedule homepage.

Add this event to your calendar