The Policy Layer

Contrary to popular belief, price discovery can occur at decentralized exchanges instead of at centralized exchanges. We discuss the underlying economics and how this affects bidding for block space. We also discuss how private memory pools affect bidding behavior and the price discovery process. Guests: Ruizhe Jia (Stanford University), Shihao Yu (Singapore Management University) Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4236993 🟢 https://open.spotify.com/episode/5Jq7Z3SCQHRtma9NdqwpjV 🟣 https://podcasts.apple.com/us/podcast/ava-labs-x-cber-ep-14-price-discovery-at-decentralized/id1706838957?i=1000737259483

This episode covers the digitization of payments and the rise of stablecoins. We discuss China’s CBDC project, the success of USD stablecoins, and the barriers to broader stablecoin adoption. We also examine how stablecoins could reshape the modern payment infrastructure. Guests: Lin William Cong (Cornell University), Simon Mayer (Carnegie Mellon University) Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4063878 🟢https://open.spotify.com/episode/3wECfvSkePcU2sKyFayxDF 🟣 https://podcasts.apple.com/us/podcast/ava-labs-x-cber-ep-13-stablecoins-and-digital-payments/id1706838957?i=1000737258244

This podcast covers Maximal Extractable Value (MEV), Loss-Versus-Rebalancing (LVR) and associated mitigation methods. To provide more background, MEV is the economic value that can be extracted from blockchain users through arbitrage activity. Of particular note, arbitrageurs can extract value from liquidity providers at Decentralized Exchanges (DEXs) where these losses are known as Loss-Versus-Rebalancing (LVR). After explaining both MEV and LVR, this podcast focuses on mitigation methods including expedited block times and auction mechanisms intended to extract MEV. Guest: Professor Ciamac Moallemi (Columbia University) Paper: Automated Market Making and Arbitrage Profits in the Presence of Fees 🎧 Listen on Spotify and Apple Podcasts

This podcast covers DEX Aggregators and Solvers. In more detail, DEXs are not isolated entities. Rather, a variety of "intents markets" have arisen (e.g., Uniswap X, CoW Swap) where users can express "intents" to trade and then these markets execute the intents by relying on DEX liquidity and also potentially other sources of liquidity (e.g., fillers). Intents markets are generally classified as aggregators or solvers, and this podcast explains the space of intent markets, clarifying the distinction between aggregators and solvers. The podcast particularly focuses on economic implications of intents markets. An important point is that assertions that these markets are likely to entail favorable outcomes for traders are not necessarily correct due to the underlying economic structure. Guest: Professor Mallesh Pai (Rice University) Paper: An Analysis of Intent-Based Markets 🎧 Listen on Spotify and Apple Podcasts

This podcast explains the novel risks for traders who trade at Decentralized Exchanges (DEXs) and why standard regulatory approaches are not well-suited for addressing those risks. The podcast then discusses the feasible paths for regulation weighing the relative advantages and disadvantages. An important point is that regulators are not necessarily properly aware of the challenges of regulation in the blockchain context and, as a consequence, some regulatory actions being taken might be counter-productive. Guests: Professor Campbell Harvey (Duke University) and Professor Joel Hasbrouck (NYU Stern) Paper: The Evolution of Decentralized Exchange: Risks, Benefits, and Oversight 🎧 Listen on Spotify and Apple Podcasts

This episode discusses the costs of liquidity provision at Decentralized Exchanges. Ciamac Moallemi (Columbia University) explains that liquidity providers at a Decentralized Exchange always face a loss relative to an asset portfolio that actively rebalances to match the asset weighting of the Decentralized Exchange at all times. This loss, known as Loss-Versus-Rebalancing (LVR, pronounced 'Lever'), is the primary cost of liquidity provision. Design refinements to mitigate this cost are discussed. Paper: Automated Market Making and Loss-Versus-Rebalancing