Dynamic Exponent Market Maker: Personalized Portfolio Manager and One Pool to Trade Them All

TL;DR

This paper introduces a dynamic invariant AMM protocol allowing flexible token deposits, acting as a personalized portfolio manager, and consolidating trading into a single pool to reduce costs, with considerations for security vulnerabilities.

Contribution

It presents a novel dynamic invariant AMM that enables flexible deposits and unified trading, improving upon traditional fixed-proportion pools.

Findings

Supports arbitrary token deposits maintaining proportional value

Reduces transaction and gas fees by consolidating pools

Vulnerable to flash loan attacks, requiring safeguards

Abstract

Decentralized exchange platforms such as Uniswap and Balancer operate on several pools where each pool contains two or more cryptocurrencies and constitutes direct trading pairs. The drawbacks here are that liquidity providing requires contribution of tokens in a specific proportion, and trading may require hopping between pools, hence increasing transaction fee and gas fee. We propose an automated market maker (AMM) protocol where liquidity providers can deposit any amount of tokens into the pool. The protocol will preserve the proportion of tokens by total value at the time of deposit and can be seen as a personalized self-balancing portfolio manager. In addition, since the invariant function is dynamic, all exchange pairs are executed from a single composite pool. Nevertheless, the scheme is vulnerable to flash loan attacks and must be used in conjunction with preventive measures.