Not logged in.

Contribution Details

Type Bachelor's Thesis
Scope Discipline-based scholarship
Title The functionality of liquidity pools, decentralized exchanges, with automated market maker protocols
Organization Unit
Authors
  • Zora Raschèr
Supervisors
  • Claudio Tessone
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Date 2022
Abstract Text Cryptocurrencies, which are cryptographic virtual currencies, are centralized networks, based on blockchain technology. This means, that they are not issued by a central authority. With cryptocurrencies becoming more and more important, their exchange gets more and more significant as well. There are different ways of trading cryptocurrencies, there are centralized or decentralized options. With the decentralized option of decentralized exchanges (DEX), there is no need for a centralized market maker or a central authority since decentralized finance (DeFi) platforms use automated market maker (AMM) protocols, involving no further third party. Related to that, smart contracts, which are automated transaction protocols, enable the creation of decentralized finance elements, which are for example liquidity pools. Liquidity pools are pools of cryptocurrencies or tokens that involve many different participants. When trading in markets with low liquidity, there is a potential risk of slippage. This would be the difference between the expected trading price and the price at which the trade is finally executed. Liquidity pools are therefore a possible solution for illiquid markets. Furthermore, they are also providing speed and convenience in the decentralized finance ecosystem. Liquidity pools therefore play a very important role in decentralized finance with automated market makers, especially when it comes to decentralized exchanges. The problem to be addressed in this thesis is the functionality of liquidity pools, decentralized exchanges with automated market maker protocols. Over the past few years there are different liquidity pools that have gained large market share, like Aave, Uniswap and SushiSwap. The main contribution of the thesis would be to consolidate the sources regarding the functionality of liquidity pools in detail. The research question would address how liquidity pools work in practice and what the difference among blockchain protocols are. The method of the thesis will be theoretical/conceptual. Since sources on the topic are sparse, the main contribution would be to consolidate the sources and review the functionality of liquidity pools.
PDF File Download
Export BibTeX