Equilibrium Liquidity Provision in Concentrated Liquidity Automated Market Makers
Abstract
Automated market makers (AMMs) with concentrated liquidity (CL) are the most widely used decentralised exchanges, with daily trading volumes around $4 billion. In CL markets, liquidity providers (LPs) strategically choose price ranges to balance fee revenues against adverse selection losses. We develop a model of competition among LPs and characterise the equilibrium distribution of liquidity across ranges. The analysis shows how equilibrium outcomes depend on the number of competing LPs, the ratio of informed to uninformed trading flow, and wealth heterogeneity among liquidity providers. Finally, we examine the role of "noise" liquidity provision and show how it affects equilibrium allocations and execution costs.
About the speaker
Fayçal Drissi is currently a postdoctoral researcher at the Oxford-Man Institute, University of Oxford. He obtained a Ph.D. in Mathematics from Université Paris 1 Panthéon-Sorbonne in 2023. His thesis focused on the microstructure of traditional electronic markets and decentralised exchanges that use Automated Market Makers (AMMs). Prior to his doctoral studies, he spent five years in the hedge fund industry doing research and development related to systematic trading and global macro.