Market Making (Lecture Notes 04a)

me@ryanorban.com (Ryan Orban) — Mon, 19 Sep 2022 00:00:00 +0000

Summary

These lecture notes cover market making — the practice of continuously posting both bid and ask prices in a financial instrument to earn the bid-ask spread while managing the associated risks. A market maker is the counterparty of last resort: they commit to buying when sellers arrive and selling when buyers arrive, providing liquidity that makes markets function. In return they earn the spread, but they accept two interacting risks: inventory risk (accumulating unwanted positions) and adverse selection risk (trading against informed counterparties who know the true value).

Maximal Extractable Value and Constant Function Market Makers

me@ryanorban.com (Ryan Orban) — Wed, 20 Jul 2022 00:00:00 +0000

Summary

This paper examines maximal extractable value (MEV) — the additional value that block producers on Ethereum and similar proof-of-work or proof-of-stake chains can extract by controlling transaction ordering within a block — specifically in the context of constant function market makers (CFMMs) like Uniswap, Curve Finance, and Balancer. CFMMs define a pricing function over a liquidity pool that automatically executes trades when a user’s specified price satisfies the constraint; the paper formalizes how this deterministic pricing mechanism creates systematic opportunities for front-running, sandwich attacks, and arbitrage by actors who can observe the mempool and manipulate transaction sequencing.

Market-Microstructure on Ryan Orban

Market Making (Lecture Notes 04a)

Summary

Maximal Extractable Value and Constant Function Market Makers

Summary