Invited Talk: Xi Chen - Decentralized Finance: Delta Hedging Liquidity Positions on AMM

Decentralized finance is becoming increasingly popular nowadays. Liquidity Providers on Automated Market Makers (AMM) generate millions of USD in transaction fees daily. However, the net value of a Liquidity Position is vulnerable to price changes in the underlying assets in the pool. In this talk, we address an important question on AMM: "How can we earn transaction fees on liquidity positions in AMM without exposure to the directional price risk with the assets in the liquidity pool ?". By leveraging a portfolio of options, we propose an algorithm to delta hedge arbitrary Liquidity Positions on both uniform liquidity Automated Market Makers (such as Uniswap v2) and concentrated liquidity Automated Market Makers (such as Uniswap v3) via a combination of derivatives.