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*this* is missing the key part of IL. If price of A/B goes from 200 - 190 and you’re AMM-ing A/B, you don’t buy A @ $190. You buy it at $200. The problem with IL isn’t the mean reverting met. It’s that you get picked off to moves, trading post-move at the pre-move price. t.co/cHh5xRu6uf

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Have seen you incorrectly say this a few times now. You don't buy at 200 or 190. You buy a fractional amount at every price between the two for an average execution rate somewhere in between. In a $100M pool a trade from $200 to $190 executes at an average rate of $194.94

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Yes - this is so exactly correct that I'm mystified why SBF (who's certainly up to the math) is contradicting it. Maybe he means sthg else?

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was being lazy,

is mostly correct, though it doesn't change answer much -- the buys @ 200 are bad, the buys at 190 are break-even.

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I don't really understand your point here. Any market maker buys when people sell: that's pretty much the definition.

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So you're buying as price drops, and you know it's possible (likely, even) it keeps dropping and you'll take a loss (at least temporarily!).

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So yeah, if price only ever moved in one direction, market makers would be screwed. That's true of all MMs, A or not...

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We're probably talking past each other. What specific claim did you mean was false when you said "*this* is missing the key part of IL"?

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So: 1) MMs don't usually have the strategy of "bid and offer, never cancel, always replace", that would generally not go well 2) MMs basically always update their markets when prices move on other venues. You (and the OP) are forgetting about other exchanges.

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When another exchange's price drops, generally MMs on the first exchange would decrease their bids. But AMMs don't, they just sit there waiting for someone to sell to them at the pre-drop-price.

9:00 AM · Oct 18, 2020Twitter Web App