Apéro Defi No 2

Regulatory equivalence: mapping legal formalities to technological guarantees in the blockchain space. (Primavera de Filippi, CNRS, Stanford U.) In an era marked by technological innovation, the dichotomy between functional equivalence and regulatory equivalence takes center stage. While functional equivalence involves applying existing regulations to novel technologies that serve similar functions, regulatory equivalence presents a more subtle approach. It seeks to alleviate the regulatory burden on specific tech solutions by demonstrating their ability to achieve regulatory objectives through innovative technological guarantees. The distinctive characteristics of blockchain technology, in terms of decentralization and tamper-resistance, provide an ideal backdrop for exploring the concept of regulatory equivalence. Compelling examples of regulatory equivalence include the utilization of multi-signature mechanisms to replace traditional corporate rules and bureaucratic procedures for budget approvals, or the innovative use of proof-of-reserve by cryptocurrency exchanges to establish the full reserve of funds in custody, reducing the need for additional audits. More unexplored fields of regulatory equivalence relate to Decentralized Autonomous Organizations (DAOs) and their potential to fulfill registration requirements through public deployment on a blockchain or by embedding corporate rules directly into on-chain governance structures. This talk will present the concept of regulatory equivalence in the blockchain space, and explore how, by mapping legal formalities to technological guarantees, it provides valuable insights into how blockchain technology can not only comply with existing regulations but also enhance and streamline regulatory compliance, ushering in a new era of regulatory technology innovation. Automated Market Makers: Mean-Variance Analysis of LPs Payoffs and Design of Pricing Functions (Olivier Guéant, U. Paris 1) With the emergence of decentralized finance, new trading mechanisms called Automated Market Makers have appeared. The most popular Automated Market Makers are Constant Function Market Makers. They have been studied both theoretically and empirically. In particular, the concept of im- permanent loss has emerged and explains part of the profit and loss of liquidity providers in Constant Function Market Makers. In this paper, we propose another mechanism in which price discovery does not solely rely on liquidity takers but also on an external exchange rate or price oracle. We also propose to compare the different mechanisms from the point of view of liquidity providers by using a mean / variance analysis of their profit and loss compared to that of agents holding assets outside of Automated Market Makers. In particular, inspired by Markowitz’ modern portfolio theory, we manage to obtain an efficient frontier for the performance of liquidity providers in the idealized case of a perfect oracle. Beyond that idealized case, we show that even when the oracle is lagged and in the presence of adverse selection by liquidity takers and systematic arbitrageurs, optimized oracle-based mechanisms perform better than popular Constant Function Market Makers.