A transaction-level optimization model shows that JIT liquidity providers on Uniswap V3 could raise profits by up to 69% by accounting for price impact, but optimized JIT activity would cut passive LP fee income by up to 44% per trade.
Impermanent loss and loss-vs-rebalancing I: some statistical properties
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abstract
There are two predominant metrics to assess the performance of automated market makers and their profitability for liquidity providers: 'impermanent loss' (IL) and 'loss-versus-rebalance' (LVR). In this short paper we shed light on the statistical aspects of both concepts and show that they are more similar than conventionally appreciated. Our analysis uses the properties of a random walk and some analytical properties of the statistical integral combined with the mechanics of a constant function market maker (CFMM). We consider non-toxic or rather unspecific trading in this paper. Our main finding can be summarized in one sentence: For Brownian motion with a given volatility, IL and LVR have identical expectation values but vastly differing distribution functions.
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Strategic Analysis of Just-In-Time Liquidity Provision in Concentrated Liquidity Market Makers
A transaction-level optimization model shows that JIT liquidity providers on Uniswap V3 could raise profits by up to 69% by accounting for price impact, but optimized JIT activity would cut passive LP fee income by up to 44% per trade.