---
title: Liquidity Provision on DEX
url: https://www.ml-quant.com/papers/ssrn/4694683/
site: ML-Quant (https://www.ml-quant.com)
updated: 2026-09-26
license: Summaries CC BY 4.0; links go to the original sources
index: https://www.ml-quant.com/llms.txt
identifier: SSRN 4694683
source_url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4694683
featured: 2024-01-17
citations: unknown
topic: Trading, Microstructure & Execution
---


# Liquidity Provision on DEX

Decentralized exchanges' infrastructure can lead to arbitrage losses for liquidity providers, with design changes offering limited reduction in these losses, as shown in a study using the Silicon Valley Bank collapse.

- Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4694683
- Identifier: SSRN 4694683
- Released: 2021-03-17
- First featured: Quant Letter No. 33 (2024-01-17): https://www.ml-quant.com/issues/2024-01-17/
- Citations (Semantic Scholar): not tracked
- Published in: not yet
- Topic: Trading, Microstructure & Execution

## Related

- [Impermanent Loss Conditions: An Analysis of Decentralized Exchange Platforms](https://www.ml-quant.com/papers/arxiv/2401.07689/): The paper explores the issue of impermanent loss in decentralized exchanges through Monte Carlo simulations, indicating that price changes don't always result in losses for liquidity providers and that an arbitrage-friendly environment is beneficial for them.
- [An arbitrage driven price dynamics of Automated Market Makers in the presence of fees](https://www.ml-quant.com/papers/arxiv/2401.01526/): The article introduces a model for price dynamics in Automated Market Makers, suggesting a reference market price and deriving several analytical results about its behavior using local times and excursion-theoretic methods.
- [Exploring the Impact: How Decentralized Exchange Designs Shape Traders' Behavior on Perpetual Future Contracts](https://www.ml-quant.com/papers/arxiv/2402.03953/): The study analyzes trader behavior on perpetual future contracts in both centralized and decentralized exchanges, focusing on the impact of blockchain technology and the potential risks and benefits in the DeFi sector.
- [Deep reinforcement learning for arbitrage in decentralized exchanges](https://www.ml-quant.com/papers/ssrn/4666504/): The study explores trading performances under arbitrage conditions in decentralized exchanges, using a simulation model and deep reinforcement learning to determine optimal arbitrage strategies for eight cryptocurrency pairs.
- [Closed-form solutions for generic N-token AMM arbitrage](https://www.ml-quant.com/papers/arxiv/2402.06731/): The article introduces a new mechanism for identifying arbitrage trades on automated markets, providing better opportunities and quicker capitalization than previous methods, and enabling on-chain arbitrage bots for multi-asset pools.
- [The Paradox Of Just-in-Time Liquidity in Decentralized Exchanges: More Providers Can Sometimes Mean Less Liquidity](https://www.ml-quant.com/papers/arxiv/2311.18164/): The research analyzes the paradox of just-in-time (JIT) liquidity provision in decentralized exchanges, which can reduce liquidity, and suggests a two-tiered fee structure to counteract this.
