Understanding Returns

Portfolio values

A portfolio value gives the value of a LP share for a given exchange rate. The portfolio value of an AMM can be derived from the trading invariant or vice-versa.

It has been shown that portfolio values of all constant function automated market makers are nondecreasing, non-negative, and concave. This means that without external rewards, providing liquidity is always worse than holding the underlying tokens.

PowerMaker portfolio values

The portfolio value of a PowerMaker liquidity position is shown below:

V(p)= \begin{cases} 2p*p_{1}-p^{2} & 0\le p\le p_{1}\\ p_{1}^{2} & p > p_{1} \end{cases}

PreviousCapped Power Invariant NextSecurity

Last updated 9 months ago

Portfolio values

A portfolio value gives the value of a LP share for a given exchange rate. The portfolio value of an AMM can be derived from the trading invariant or vice-versa.