Cryptocurrency Markets: Structure and Trading

Module: Fintech AI | Difficulty: Advanced

Market Structure

• 24/7 trading
• Global fragmented liquidity
• High volatility

AMM (Automated Market Making)

Impermanent Loss

where .

Trading Strategies

import numpy as np

class AMM:
    def __init__(self, token_a_reserve, token_b_reserve):
        self.reserve_a = token_a_reserve
        self.reserve_b = token_b_reserve
        self.k = token_a_reserve * token_b_reserve
    def price(self):
        return self.reserve_b / self.reserve_a
    def swap(self, amount_in, fee=0.003):
        amount_in_with_fee = amount_in * (1 - fee)
        amount_out = self.reserve_b - self.k / (self.reserve_a + amount_in_with_fee)
        self.reserve_a += amount_in_with_fee
        self.reserve_b -= amount_out
        return amount_out
    def impermanent_loss(self, price_ratio):
        return 2 * np.sqrt(price_ratio) / (1 + price_ratio) - 1

Research Insight: Crypto markets have unique characteristics: 24/7 trading, global fragmentation, and regulatory uncertainty. Market making is profitable due to high volatility and wide spreads, but inventory risk is significant.