Key Takeaways
This paper shows that any monotonic payoff can be replicated using only liquidity provider shares in constant function market makers (CFMMs), without the need for additional collateral or oracles.
Such payoffs include cash-or-nothing calls and capped calls, among many others, and we give an explicit method for finding a trading function matching these payoffs.
The paper additionally provides a simple formula for the total earnings of an arbitrageur who is arbitraging against these CFMMs.
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