📍 The Impact of the Exchange Fees on Impermanent Loss
of Liquidity Providers for Conservative Automated Market Makers (#AMM)
🚨 This study challenges the long-held belief that liquidity providers (#LPs) in AMMs are destined to suffer impermanent losses. For the first time, the authors provide closed-form formulas and #data-driven modelling showing that impermanent gain is not only possible but prevalent in systems like #Uniswap, Balancer, and #Curve, when non-zero #exchange fees and small trade volumes intersect.
Key Highlights
Redefining Risk:
The paper analytically proves that impermanent gain exists in a significant share of real-world #Ethereum-based AMM trades, especially where fees are appropriately set.
Empirical Evidence:
Historical data shows that over 95% of trades in pools like #Uniswap and #Sushiswap led to impermanent gains for LPs, flipping the narrative on its head.
Dynamic Fee Strategy:
The authors propose a simple yet powerful approach to adjust AMM #fee rates based on historical #trade volumes, optimising profitability and mitigating #risk.
Applicable Models:
Explicit formulas for AMM pricing mechanics and impermanent gains are derived and simulated for Uniswap, #Balancer, and Curve, making this a key reference for #DeFi researchers and #protocol designers.
This paper advances the #microeconomic theory of DeFi and contributes to smarter, more resilient liquidity management in decentralised #markets.
✅ Published Open Access in The #JBBA:
https://jbba.scholasticahq.com/article/138648-the-impact-of-the-exchange-fees-on-impermanent-loss-of-liquidity-providers-for-conservative-automated-market-makers
✍🏽 Research from Roman Vlasov, Professor Vladimir Gorgadze of Moscow Institute of Physics and Technology (State University) (MIPT) and Artem Barger of Idea Blockchain Research Lab, Haifa, #Israel.
✅ Indexed in DOAJ and Web of Science, read by > 1 Million readers a month.
📚This paper will be featured in the *16th* issue of The JBBA (on track for Oct 2025).
➡️ Submit your articles to The JBBA:
https://jbba.scholasticahq.com/for-authors
#JBBA #DeFi #LiquidityProviders #AMM #BlockchainResearch #Uniswap #Balancer #Curve #CryptoEconomics #Tokenomics #DecentralisedFinance #Blockchain
