A model of a competitive decentralized exchange (DEX) environment where liquidity providers strategically minimize trading costs for noise traders, while accounting for the presence of front-runners. The equilibrium results in multiple liquidity pools with varying fee rates, depending on the composition of traders in each pool.
- Goal: To understand how market fragmentation emerges endogenously in DEXs as a response to heterogeneous trader types and strategic LP behavior.
- The simulation code is available in this repository and allows replication of the theoretical model's predictions.
- The empirical analysis (based on blockchain transaction data) will be uploaded soon.
- DEX liquidity provisioning
- Market fragmentation
- Front-running & MEV
- Pool fee optimization
- Equilibrium analysis