Stability Analysis of Market-Making Mechanisms for Decentralized Cryptocurrency Exchanges

This work enhances the operational efficiency and balances slippage prices stability and arbitrage opportunities. The predominant mechanism in existing exchange operations is the automated market maker, which eliminates the need for customers to agree on prices and utilizes the inverse formula X × Y = K. Several existing market maker schemes, such as constant product market maker and constant mean market maker, are analyzed and compared. There are market stakeholders—such as investors, customers, arbitrageurs, and trading platforms— perceive risks and opportunities differently amidst the high volatility of the cryptocurrency market. This study discusses the merits, drawbacks, potential opportunities, and challenges associated with the mechanism. We explore the exchange efficiency and methods to balance stable slippage prices for customers and arbitrage opportunities.