A Short Note on Setting Swap Parameters

Paper: arXiv 2305.10624

Authors: Nihar Shah, Lucas Baker, Suraj Srinivasan, Alex Toberoff

Abstract

This short note illustrates the theoretical solution to a trader determining how to optimally swap her wealth into a target asset through on-chain operations. It offers the framework to solve optimal slippage parameters and optimal trade size.

Complexity vs Empirical Score

• Math Complexity: 6.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The note presents a solid theoretical optimization model for on-chain execution and slippage parameter setting using standard analytical calculus. However, it completely lacks empirical validation, empirical data, or backtesting on real Decentralized Exchange (DEX) transactions.

Research Flowchart

  flowchart TD
    A["Research Question: How to optimally swap wealth into target asset on-chain?"] --> B["Inputs: Initial Wealth, Target Asset, On-Chain Liquidity & Gas Costs"]
    B --> C["Framework: Model Trade Size vs. Price Impact & Slippage"]
    C --> D["Optimization: Calculate Trade Size & Slippage Parameters"]
    D --> E["Outcomes: Optimal On-Chain Trade Sizing & Execution Strategy"]