Replicating Market Makers

An overview of replicating market makers

Replicating Market Makers

Replicating market makers refers to the ability of AMMs to replicate a number of useful payoffs for liquidity providers. Namely any non-decreasing, concave, non-negative function. Even more functions can be replicated (e.g., decreasing or convex functions) through the use of lending markets.

A notable example in production are index funds or token ETFs enabled through the use of weighted pools (aka geometric mean market makers) pioneered by Balancer. Such pools allow liquidity providers to select a ratio for how much of each asset they want to deposit. No matter what the price is, the pool's assets will always be held at the ratio of what was specified at initialization.

Shared Liquidity

To read about why Duality is the best destination for replicating market makers check out our section on shared liquidity.