Hybrid Market Making - Test-case feasibility exploration

General Discussion
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HI all, obviously I’m new in this forum, but it was recommended to me that this would be the best place to open a dialogue regarding a research project I have been working on for roughly the last 18 months and have plans to publish.

The subject of my research is what I’ve been calling a Hybrid Market Making Strategy, and it expands upon the current body of Automated Market Making research that already exists in the DeFi space.

I am currently looking for a project to work with as a case study, and while any market making project might be sufficient, an established stablecoin would be ideal.

Why Oath?
I’ve been following the Byte Masons for a couple of years now, and I speak with Justin occasionally. While my research topic is particularly relevant to several of the current Byte Mason product offerings, my primary motivation to approach Justin and the Byte Masons community in general was mainly based on a strong feeling of alignment with the overall ethical standards that I have seen the group adhere to consistently.

Who am I?
My background has been primarily based in the web2 era, and spans over roughly 25 years. During that time, I wore many hats, including Web Development, Systems Engineer, Web Hosting (front and back of the house), B2B, B2C Sales and Marketing, and Product Development. I have also spent a great deal of time Sourcing, Brokering, and Reselling IT related commodities, mostly on the secondary market (i.e. New, Used and especially Off-Lease equipment, and out of channel gear related to Asset Recovery), and I also spent some time brokering Integrated Circuit (Mostly RAM and PC related parts back in the early days of DELL and COMPAQ), and consumer electronics.

In the following post, I am including a brief that outlines the TL;DR of my research subject and goals. It seemed to me that posting the brief and introduction separately would help to avoid any confusion when referenced in the future of this thread.

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-------------- Project Brief --------------

I. TOPIC

Making a case for the potential benefits of analog market making in an ocean of AMM’s.

II. RESEARCH PROBLEM STATEMENT

AMM’s have undoubtedly played a (if not “the") crucial role in the evolution of DeFi as we know it today. That said, the AMM is still in it’s infancy, while humans have been making markets since at least the 11th century. In their current state, AMM’s offer a novel way for markets to operate 24/7/365 with a fraction of the volume that would be needed by traditional order book models, but these innovations come with some substantial tradeoffs (as is usually the case with shiny new things).

III. HYPOTHESIS

It is my hypothesis that current methods of liquidity deployment on many of the major AMM’s are quite rigid when used on their own, and that a hybrid Market Making approach that employs both AMM, and actively maintained “Analog” (human controlled) methods may provide substantial benefits (see list below), and are especially well suited to managing stablecoin price volatility.

Issues addressed:

  • Extreme improvement of capital efficiency. (as in double digit multiplier) more efficient than say, a Univ2 model
  • Drastic reduction of impermanent loss for Liquidity Providers. Similar to Balancer style pools
  • Substantially reduce risk exposure of deployed capital . Especially in the case of extreme market volatility due to less-predictable events (aka Luna, FTX scale events)
  • Multi-phased approach. Actively steer market events from both, inside the pool and externally.
  • Composability. Freedom to adjust strategies both, programmatically, and/or manually based on human based forecasting.
  • Decentralization. Ability to create, set, and reference multiple, custom oracles based on both on and off chain data (i.e. for internal use, etc.).

IV. RESEARCH OBJECTIVES

The ultimate goal of my research is to propose and test a basket of tools and strategies that are:

  • Currently available
  • Use well established, battle tested tools/code
  • Are accessible – Use tools that offer a drastically lower barrier of entry for end users in regards to UI, UX and level of technical skills needed to deploy/operate.

V. WHY BYTE MASONS/OATH?

I speak with Justin occasionally, and given the nature of my research the Byte Masons seemed like an obvious fit for a case study. Before submitting a formal proposal, I am currently seeking a point of contact within the Byte Masons organization who might be interested in working with me to determine the feasibility of a possible test case.

Final Product:

I hope for the final published work to be useful for reference, and as a guide for practical use. My hope is to help further the implementation, decentralization, and democratization of market making tools and practices in DeFi at the individual level, specifically in a way that is accessible to, and promotes large numbers of smaller, less centralized market making entities in order to circumvent many of the less savory issues that are often cited (and often deserved) regarding the practice in both current ,and historical Trad-Fi markets.

It is my genuine belief that that democratization of Market Making , and specifically the lowering of barriers to entry and participation, are fundamentally as important to DeFi markets as the various methods of consensus are to blockchain technology in general.

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Hi FraugDib
Thanks for taking the time to introduce yourself and outline your project hypothesis.

I am still not quite sure what the scope of your research is but would be happy to help you out as much as possible.
We can continue the conversation here in the forum or you can reach out to me separately if you prefer (twitter/discord/telegram), and as I come to understand requirements I will be able to bring in the right people.

Yuvi

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Awesome, thanks. I’ll find you on X or Discord and we can talk more about the specifics…

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