Academic Events

Quantitative Investments in Decentralized Finance

Evgeny Lyandres

Tel Aviv University

This project contains the first in-depth analysis of the most important investment strategy in DeFi – provision of concentrated liquidity to automated-market-making liquidity pools. The first contribution of this project is compilation of data on the whole population of concentrated liquidity positions and trades on the Ethereum blockchain. These data are vast, currently encompassing over 6,000 liquidity pools, over a million liquidity provision and withdrawal events, and over 70 million trades, as of the end of 2024. Concentrated liquidity provision is a combination of several strategies: liquidity concentration (the core quantitative part of the strategy); pool choice, which is a combination of a bet on trading volume in the pool and a reverse bet on the volatility of the exchange rate of the pool’s assets; asset picking; market timing; and transaction (gas) cost optimization. The second (methodological) contribution of the project is development of a unique decomposition of the concentrated liquidity provision strategy’s P&L into aforementioned comonents. The third contribution of the project is an in-depth analysis of relations between strategy parameters, strategy deployer characteristics, and liquidity pool characterestics on one hand and the profitability of each of strategy components on the other hand. To my knowledge, this is the first large-sample academic study of performance of concentrated liquidity provision strategies in DeFi. The fourth contribution of this project is to the broader literature on performance of quantitative strategies. Unlike in traditional asset markets, all strategies by all market participants in the DeFi market are observable and decomposable, and the performance of each aspect of every strategy is measurable. An additional advantage of the DeFi setting is that there is significantly less fundamental information in crypto assets than in assets traded in traditional markets, making quantitative strategies the predominant kind. By examining performance of various components of liquidity provision strategies, this project will shed light on quantitative investors’ skills and on reasons for the growth in the share of quantitative investments in the overall investment landscape.

Evgeny Lyandres’ research focuses on the interaction between firms’ financial and operating strategies, and on the effects of product market competition on various firms’ financial decisions, such as capital structure choices, M&A strategies and the going public choices. He is also interested in applications of real options theory to firms’ financial and investment decisions. Recently, his research focus shifted largely to applications of blockchain technology in finance. His theoretical and empirical papers have been published in leading finance journals, such as the Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Management Science, Journal of Business, Review of Finance, and Journal of Financial and Quantitative Analysis among many others, and received numerous awards and prizes. Evgeny serves as a Co-editor of Journal of Corporate Finance and as an Associate Editor of several journals.