Dynamic exponent market maker: personalized portfolio manager and one pool to trade them all

Abstract

Decentralized exchange (DEX) 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 provision requires the contribution of tokens in a specific proportion, and trading may require hopping between pools, hence increasing the transaction fee and gas fee. We propose an automated market maker (AMM) protocol where liquidity providers (LPs) can deposit any amount of tokens into the pool. The protocol preserves 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.