This paper discusses the best market making scheme of Uniswap V3

Title: "The Defi Way: The Best Market Making Approach for Uniswap V3"

原文作者： Michael Neuder、Rithvik Rao、Daniel J. Moroz、David C. Parkes

Original compilation:Free and easy, the way of DeFi

Since its launch,UniswapV3 has leaped to decentralization in just a few monthsTrading platform(DEX) and the fact that the majority of Uniswap V3 LP still uses simple, passive liquidity positions shows that there is huge untapped potential in Uniswap V3. Four researchers from Harvard University, Michael Neuder, Rithvik Rao, Daniel J. Moroz and David C. Parkes, wrote a paper exploring Uniswap V3's liquidity supply strategy and concluded that In the case of risk neutral and low risk, the proportional reset allocation strategy is almost the best, while in the case of high risk or for the liquidity provider with extreme risk aversion, the optimal plan is to reset the allocation evenly.

An overview of the

Uniswap is currently the largest decentralized digital asset trading platform, and its latest version, Uniswap V3, allows liquidity providers (LP) to allocate liquidity to one or more asset price ranges, rather than the entire price range. When the market price of the asset remains within this range, the liquidity provider (LP) receives a reward proportional to the amount of liquidity allocated.

This raises questions about liquidity provision strategies: when prices remain within ranges, smaller intervals lead to greater liquidity concentration and correspondingly greater returns, but higher risk. We formalize this problem and study three types of liquidity provider (LP) strategies :(1) uniform allocation, (2) proportional allocation, and (3) optimal allocation (through constraint optimization problem).

We present experimental results based on Ethereum historical price data, which show that a simple liquidity provision strategy can produce near-optimal utility, with a low risk scenario that is more than 200 times higher than the Uniswap v2 liquidity provision return.

1 Introduction to the

decentralizedfinancial(DeFi) is encryptioncurrencyAnd a large and rapidly growing segment of the blockchain ecosystem that is designed to be used to execute on the blockchain (usually Ethereum)Intelligent contractReplicate traditional financial intermediaries and instruments and make financial innovations.

From May 2020 to May 2021, the TVL (total lock-in value) entering the DEFI protocol has grown rapidly from $800 million to $80 billion [15].

Decentralized Exchange Platform (DEX), a subdomain of DEFI, allows users to exchange different types of tokens without a trusted intermediary. Most of today's decentralized trading platforms, including Uniswap, fall into the constant function market maker (CFMM) category. Instead of using order books as traditional trading platforms do, CFMM uses automated market makers (AMMs) to determine the price of assets.

In Uniswap v2, token pairs can be exchanged using a liquidity pool containing both tokens. Allowed transactions by the reserve curve

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