22 Jan 2022
TheAMMBook.org Weekly Newsletter
published blog post and paper (almost)

What happened with us this week?

1. The Quantitative Finance Aspects of Automated Market Markers in DeFi (Version v0.1 beta 5) (The AMM Book)

   This week we dropped the first beta of our paper. If this is your thing – please review and comment. Still very much an MVP with a lot of edges, but otherwise by and large complete with respect to what we wanted to be in there in the first stage.

2. Merit of arbitrageurs (tweetstorm by @odtorson)

   A short tweet storm explaining why arbitrageurs are much needed in the Defi eco-system, and why they can be considered the “real” AMMs. Does not mean we have to overpay them of course.

3. The AMM Book production setup (The AMM Book)

   A short post the explains our finely honed production pipeline, going from markdown to latex, word and the website, for those who like us can not deal with Word for book-size publications

4. Using Black Scholes to estimate the size of Divergence Loss / Impermanent Loss for AMMs (The AMM Book)

   That’s a post that I am quite glad about as it addresses some issue that have been bothering for a while. Notably, since writing the Bancor v2.1 paper it was clear that AMMs, European options, and Divergence Loss / Impermanent are closely related. However – AMMs execute a perpetual trading strategy, European options have a maturity date, and how do those pesky arbitrageurs fit in. In this post a lot of those question are finally resolved.

Pretty busy week, even though we are still not quite there where we hoped to be at this stage – too much other things going on. The paper is pretty much finalized for peer review and it’ll be downloadable at the end of the weekend. Also wrote a blog post that I am really happy about, finally solving an issue the bugged me for a long time, since I first started looking at the relationship between options and AMMs for the Bancor v2.1 paper.

What else happened this week?

1. Investors riding the NFT craze are facing billions in taxes (Al Jazeera)

   Pretty detailed analysis on the issue (US) investors face when investing in NFTs. The quarterly liability surprised me.

2. Crypto-Savings Lawsuit Puts Principles of DeFi to the Test (WSJ)

   That’s an interesting case where a (politically active) developer seeks to clarify whether certain incentives are a lottery that would require licensing.

3. Indonesian student's selfies fetch US$1 million in NFT sales (Straits Times)

   A student made selfies of himself every day with the idea of making a movied when he graduates. He put them up on OpenSea. They ended up selling for a lot of money. Note the key ingredient: some celebrity found the pieces and promoted them.

4. dYdX strives to full decentralization in late 2022 (CoinDesk)

   dydx published their fourth roadmap which explains how to go to full decentralization; this is interesting because there tends to be a tension between decentralization of a protocol and its progress and decentralization is hard to undo, so you do not want to pull this trigger too early

5. OpenSea confirms acquisition of Dharma, sets sights on fiat onramps (TheBlock)

   Fairly big deal in this space. Interesting that Dharma is being shut down – bigger opportunities in OpenSea? Acquihire?

6. Indian Prime Minister Calls for Global Cooperation on Cryptocurrency (CoinDesk)

   Not a massively positive speech from the Indian PM here. He seems to be mostly calling for a global approach to regulation.

7. US Banks Form Group to Offer USDF Stablecoin (CoinDesk)

   A consortium of second tier banks in the US is launching a stable coin on the Provenance blockchain. FDIC insurance status not clear – if it was this may be a game changer. Also KYC requirements not clear.

8. BitMEX execs reveal EU expansion with German bank acquisition (CoinTelegraph)

   BitMEX, which only recently solved regulatory issues they’ve had for a while, announced that they are planning to take over Bankhaus Heydt, a very old German bank that has been reorienting itself towards the crypto asset space for a while. It is worth noting so that Heydt is tiny – their balance sheet 2020 is only 14 million (yes, million).

9. Iran to reportedly pilot central bank digital currency soon (CoinTelegraph)

   Another sign that CBDC is gaining momentum. Iran is also an interesting case because of the experience with the US sanctions and their consequent difficulties using dollar-based payment systems. Having said this, “…hinted at a possible CBDC pilot soon without elaborating on the time frame of the program…” may suggests that this is not as close as on may think.

A heavy news week this week, with important M&A (OpenSea and BitMEX) and important developments in CBDCs and regulations.

Interesting research

1. Web 3 is going just great (web3isgoinggreat)

   Not a specific research piece per se, but rather an interesting timeline of the scams, rugpulls and attacks happening in the Web 3 world

2. How can regulation keep up as transformation races ahead? (EY)

   EY just issued a new report on the future of (financial services) regulation. Not all is about crypto, but there is a section on the changing regulatory perimeter when it comes to crypto assets, and they discuss the impact of CBDCs

3. Defi Llama (DefiLlama)

   That’s an amazing (and pretty) tool to look at TVL in the DeFi space, across 500+ protocols (out of which 300+ are classified as DEXes). They also have a great API.

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