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Mechanism Design for Performance Improvement of Decentralized-Finance (DeFi) Platforms

Golshirazi, Amir Hossein | 2025

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 58466 (05)
  4. University: Sharif University of Technology
  5. Department: Electrical Engineering
  6. Advisor(s): Maddah Ali, Mohammad Ali; Golestani, Jamaloddin; Ashtiani Mofrad Tehrani, Farid
  7. Abstract:
  8. This thesis presents the design of a novel mechanism for decentralized exchanges. In the introduction, decentralized exchanges and the reasons for their emergence in cryptocurrency-based systems are discussed. A fundamental limitation of these exchanges is the lack of information about the external market price, whereas tracking the external market price over time is crucial for them in various respects. There exist traders who are aware of the external market price and seek to profit from the difference between the exchange price and the external market price. Fortunately, the presence of such traders enables decentralized exchanges to track the external market price. The cost of this tracking is, in fact, the profit earned by these traders and, equivalently, the loss incurred by the decentralized exchanges. The main body of this thesis focuses on designing a trading mechanism for decentralized exchanges that leverages the presence of these traders for price tracking while simultaneously aiming to minimize the loss caused by trading with them. The proposed mechanism is model-based and requires computational knowledge to derive the optimal policy for Markov decision processes. The mechanism has been analytically evaluated in a simplified setting and then assessed through computer simulations, comparing its performance with another widely-used decentralized exchange
  9. Keywords:
  10. Decentralized Exchanges (DEX) ; Markov Decision Making ; Decentralized Finance (De-Fi) ; Performance Improvement ; Mechanism Design

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