Andreas Park PRO
Professor of Finance at UofT
Paper by Alfred Lehar & Christine Parlour
Discussion by Andreas Park
SAFE Microstructure August 2021
Source: Letter to Janet Yellen, Chair of the Financial Stability Oversight Council (FSOC) https://www.warren.senate.gov/imo/media/doc/FSOC%20Crypto%20Letter%2007.26.2021.pdf
“[…] the need for a coordinated and cohesive regulatory strategy to mitigate the growing risks that cryptocurrencies pose to the financial system”
How do you set the price?
Price mechanism:
Prices
between .5 and 1 bps
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andreas.park@rotman.utoronto.ca
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However: although front-running is annoying, it is only a concern if it is intrinsically profitable.
My paper:
\(X\)
\(Y\)
normal trade: sell \(x\) \(\to\) get \(y'\)
\(Y-y'\)
\(X+x\)
front-running:
\(Y-y'-y''\)
\(X+2x\)
\(y'>y''~\Rightarrow\)
front-running is intrinsically profitable
Disclaimer:
\(X\)
\(Y\)
\(Y-y'\)
\(X+x\)
\(Y-y'-y''\)
\(X+2x\)
\(y'=y''~\Rightarrow\)
front-running is not intrinsically profitable
CPAMM
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By Andreas Park