NUS Quantitative Finance Joint Seminar Series (Webinar)
NUS Quantitative Finance Joint Seminar Series (Webinar)
This webinar is jointly organised by Risk Management Institute and Centre for Quantitative Finance
Programme
Title: The Adoption of Blockchain-Based Decentralized Exchanges
Associate Professor Agostino Capponi (Columbia University)
Abstract:
Decentralized finance (DeFi) is a competitive marketplace of decentralized financial applications that operate through smart contracts, which currently manages over $57 billion USD. We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of pricing functions implemented by DeFi exchanges, and highlight the fundamental differences with centralized limit order books. Through a dynamic game theoretical model we demonstrate that, in equilibrium, arbitrageurs extract gains from liquidity providers for a broad class of convex, twice differentiable, and positively homogeneous pricing functions. We show that pricing curves with higher convexity result in higher price impact, which reduces arbitrage and liquidity freezes, but also decreases trading volume. We provide statistical support for our model implications using transaction-level data of Uniswap and SushiSwap AMMs (joint work with R. Jia).
About the Speaker
Agostino Capponi is an Associate Professor in the IEOR Department at Columbia University. His research interests are in financial technology, market microstructure, systemic risk, and economic networks. Agostino's research has been funded by major agencies such as NSF, DARPA, DOE, IBM, GRI, Ripple, and Ethereum. His research has been recognized with the 2018 NSF CAREER award, and a JP Morgan AI Research Faculty award. Agostino is a fellow of the crypto and blockchain economics research forum, and an academic fellow of Alibaba's Luohan academy. He serves as an editor of Management Science in the Finance Department, co-editor of Mathematics and Financial Economics, and area editor of Operations Research Letters. He also serves as an associate editor of major journals in his field, such as the SIAM Journal on Financial Mathematics, Finance and Stochastics, Stochastic Systems, and Operations Research. Agostino is the former Chair of the SIAG/FME Activity Group and of the INFORMS Finance Section, and the founding director of the Columbia Center for Digital Finance and Technology.
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