RMM Limitations
The gap between a target payoff and realized pool behavior.
#Model limits
- Continuous trading and stable inputs are approximations.
- A volatility parameter can become stale across regimes.
- Jumps and tail events dominate local error analysis.
- A terminal payoff does not specify interim exit value.
#Market and chain limits
- Arbitrage is discrete, capital-constrained and fee-sensitive.
- Thin external liquidity weakens price alignment.
- Sequencing, gas and MEV change execution order and cost.
- Rounding accumulates near extreme reserve states.
- Corporate actions can invalidate unit and strike mappings.
#Measure the approximation
- Replicating Market Makers
Angeris, Evans and Chitra's primary paper on constructing CFMM trading functions from target payoff functions.
- Replicating Portfolios: Constructing Permissionless Derivatives
Primitive research describing RMM-01 and onchain structured-product constructions.
- Primitive rmms-py
Open-source Python simulation toolkit for covered-call RMM behavior, arbitrage and fee experiments.