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Arbitrage in non-CPMM automated market makers

Determine whether arbitrage opportunities analogous to those identified for constant product market maker (CPMM) liquidity tokens also occur in other automated market maker (AMM) designs.

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Background

The paper develops a risk-neutral pricing and hedging framework for CPMM liquidity tokens and demonstrates, using Uniswap data, that the prevailing market pricing of these tokens (at 2√P) admits arbitrage opportunities when appropriately delta-hedged.

Building on these findings, the authors speculate on the broader applicability of such arbitrage phenomena beyond CPMMs, motivating an investigation into whether similar mispricings exist across other AMM mechanisms.

References

Though we focused solely on the CPMM within this work, we conjecture similar arbitrage opportunities can be found in other AMM designs.

— DeFi Arbitrage in Hedged Liquidity Tokens (2409.11339 - Bichuch et al., 17 Sep 2024) in Section 6 (Conclusion)