Please read our White Paper we wrote to understand the math behind this!
Inspiration
The research paper (https://arxiv.org/pdf/2111.13740.pdf) titled Replicating Monotonic Payoffs Without Oracles outlines a framework of adapting the AMM structure of Uniswap and replicating different mathematical payoff functions, to allow liquidity providers to manage their risk.
What it does
Simulates an AMM with logarithmic payoff.
How we built it
Based off Uniswap V2 codebase for backend, and used React for frontend.
Challenges we ran into
We underestimated the lack of financial knowledge that our (mostly CS) team had. Initially, when we were going through the research paper (https://arxiv.org/pdf/2111.13740.pdf) on replicated market makers, we realized that we needed to understand more basic facts about financial derivatives and options markets first.
Accomplishments that we're proud of
We were able to understand the math behind the logarithmic payoff, and understand the incentives for liquidity providers and arbitrageurs. We also created a framework for a React frontend to interact with smart contracts on Ethereum.
What we learned
We consolidated our understanding of constant function market makers, the implementation of Uniswap V2, and general finance knowledge about derivatives and options.
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