Yeah their dynamic pricing helps.. but does not cover the worst case as we show in the paper (depends on the covariance structure of the pool assets)

As these pools grow, there are clearly ways that they can be improved and our paper provides a lot of directions to improve their efficiency

Hopefully this can push perpetuals DEX-CEX market share to over 15%!

From these arbitrage problems we show:
1. Optimal arbitrage is easy
2. Pools are easy to delta hedge
3. Choosing fees to make a healthy equilibrium between lenders and traders is possible

2) and 3) together explain the empirical observation that these pools are easier to hedge than CFMMs

In particular, we model these pools as “application specific lending protocols” where the borrowed asset can only be used for making trades

We write optimization problems that represent arbitrageurs trying to maximize yield by creating and redeeming LP shares, akin to interest rate arb

Looking at the code, these protocols seem very different from one another and it isn’t clear if there’s a single mechanism at play

In the paper, we formalize a model that encompasses *all* of these pools and construct a simple iterative model for how they function and what they payout

So how can DeFi compete? Since 2022 perpetual-specific lending pools — GMX’s GLP, Jupiter’s JLP, Hyperliquid’s HLP, dYdX MV— have found ways to offer MM loans via pooled products that resemble a combination of lending vaults and AMM pools

They’ve grown to >$2b, earning ~$750m in 2024 (37% yield!)

We start at this assumption: decentralized perps are used less as the cost of capital for strategic users and MMs is higher

CEXs often provide short term loans that can only be used on their exchange — a form of margin lending that improves capital efficiency and indirectly tightens spreads

Paper: x.com/bremen79/sta...

Basically, the condition number implied by the convex surrogate asymptotically approaches the optimal (like you see in Shampoo)

It’s a cool insight — these preconditioned gradient descent methods always seemed a little too magical in terms of constants and exponents — he showed there are convex surrogates that you’re actually minimizing and AM-GM gives you the exponents

I did later lol

Yeah; I agree that lumping a lot of groups into “CS” was probably too broad 😅

This is why the comparison to DeFi is incredulous to me — in DeFi the game theoretic mechanisms involved usually tie the token to the success / usage of the protocol

DeSci isn’t even a good enough narrative (imo) to be cohesive enough to support a grant program — how do you decide how to allocate across fields? The NSF but decentralized and with no accountability seems worse than EU funding agencies

There is hope for the peer review improvements

There is not hope for “hurr durr let’s do an AlphaFold token to fund research”

There are processes that can be reformed (peer review, grants, etc.) without question

But without any form of accountability on the part of the recipient, this turns into the usual crypto grant grift game (c.f. OP governance)