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       Department of Systems Engineering and Engineering Management

                               The Chinese University of Hong Kong

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Date: Friday, April 24, 2026, 4:30pm to 5:30pm HKT

Venue: ERB513, The Chinese University of Hong Kong

Title: Optimal Dynamic Fees in Automated Market Makers

Speaker: Prof. Leandro Sánchez-Betancourt, Oxford

Abstract:

Automated Market Makers (AMMs) are emerging as a popular decentralised trading platform. In this work, we determine the optimal dynamic fees in a constant function market maker. We find approximate closed-form solutions to the control problem and study the optimal fee structure. We find that there are two distinct fee regimes: one in which the AMM imposes higher fees to deter arbitrageurs, and another where fees are lowered to increase volatility and attract noise traders. As price formation takes place in the AMM, these regimes disappear and the optimal fee structure becomes constant. Our results also show that dynamic fees that are linear in inventory and that track changes in the external price are a good approximation of the optimal fee structure and thus constitute suitable candidates when designing fees for AMMs.  Link to preprint: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5278863

Biography:

Leandro Sánchez-Betancourt is an Associate Professor at the Mathematical Institute and at the Oxford-Man Institute for Quantitative Finance, both within the University of Oxford. At Oxford, he is part of the Mathematical and Computational Finance group (https://www.maths.ox.ac.uk/groups/mathematical-finance/faculty). Leandro completed his DPhil in Mathematics at Oxford under the supervision of Prof Álvaro Cartea with a thesis titled “Uncertain Execution in Order-Driven Markets” for which he received the Bruti-Liberati prize —awarded to the best PhD thesis in Quantitative Finance. Before joining Oxford, he held a Lecturer position (Assistant Professorship) at King’s College London, and before that, a postdoctoral position at Imperial College, London. His research is within mathematical finance. In particular, he is interested in: (1) stochastic games between liquidity takers and liquidity providers, (2) the mathematical theory of latency (delay effects) in order-driven markets,  and (3) mathematical models for liquidity provision in automated market makers.

Everyone is welcome to attend the talk!

SEEM-5202 Website: http://seminar.se.cuhk.edu.hk