Melting clock merging into a blockchain network, symbolizing the time-sensitive nature of digital assets within a decentralized finance ecosystem.

Automated Market Makers: Will Your Crypto Assets Expire?

Avery Sinclair in Tech & Innovation December 2025 • 4 min read.

"Discover how the next generation of decentralized exchanges is tackling the unique challenges of expiring assets."

Automated market makers (AMMs) have revolutionized the way we trade cryptocurrencies. Instead of relying on traditional order books, AMMs use mathematical formulas to set asset prices, allowing anyone to buy and sell tokens directly from liquidity pools. This system has become a cornerstone of decentralized finance (DeFi), powering billions of dollars in trading volume.

However, traditional AMMs are not designed to handle assets with a limited lifespan. Think of assets like airline tickets, event passes, or even some types of insurance contracts – once their expiration date passes, they become worthless. This poses unique challenges for AMMs, potentially leading to market inefficiencies and increased risk for liquidity providers.

A new research paper is tackling this problem head-on, proposing innovative solutions to build decentralized exchanges (DEXs) that can effectively handle expiring assets. Let's dive into the key insights of this research and explore how it could shape the future of DeFi.

The Trouble with Time: Why Traditional AMMs Struggle with Expiring Assets

Melting clock merging into a blockchain network, symbolizing the time-sensitive nature of digital assets within a decentralized finance ecosystem.

Traditional AMMs rely on arbitrage to keep prices aligned with the broader market. If an AMM undervalues an asset, arbitrageurs will step in to buy it, driving the price back up. Conversely, if an AMM overvalues an asset, arbitrageurs will sell it, bringing the price down. This mechanism works well for assets that can be traded indefinitely, such as Bitcoin or Ether.

But what happens when an asset has an expiration date? As that date approaches, the forces of supply and demand can become unpredictable. Consider a flight ticket: in the days leading up to the flight, prices may fluctuate wildly depending on seat availability and traveler demand. Arbitrageurs may find it difficult or impossible to reconcile these fluctuations, leading to price distortions within the AMM.

Vanishing Supply: Producers may stop supplying new tokens as expiration nears. Airlines won't add more seats to an almost-departing flight.
Shifting Demand: Consumers may stop buying tokens if they can't use them in time. People won't book a Caribbean hotel room if they can't get there before their vacation ends.
Exogenous Events: External factors (weather, news) can drastically alter prices, making arbitrage unreliable.

In these scenarios, liquidity providers – those who supply assets to the AMM – face increased risk. Rapid price variations can lead to significant losses, especially if arbitrage fails to keep the market in check. The paper highlights the need for new mechanisms that allow AMMs to handle the unique challenges of expiring assets.

The Future of DeFi: A More Adaptable and Sustainable Ecosystem

The research into AMMs for expiring assets represents a crucial step towards building a more adaptable and sustainable DeFi ecosystem. By incorporating mechanisms to manage the unique challenges of time-sensitive assets, these new DEX designs pave the way for a wider range of financial products and services to be offered in a decentralized manner. As the DeFi space continues to evolve, expect to see more innovative solutions that address the complexities of real-world assets and market dynamics.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2401.04289,

Title: Expiring Assets In Automated Market Makers

Subject: q-fin.tr cs.dc

Authors: Kenan Wood, Maurice Herlihy, Hammurabi Mendes, Jonad Pulaj

Published: 08-01-2024

Everything You Need To Know

What are Automated Market Makers (AMMs) and how do they work within the context of cryptocurrency trading?

Automated Market Makers (AMMs) are a cornerstone of Decentralized Finance (DeFi). Unlike traditional exchanges that rely on order books, AMMs utilize mathematical formulas to price assets, enabling users to trade cryptocurrencies directly from liquidity pools. This system has revolutionized crypto trading, allowing anyone to buy and sell tokens without the need for intermediaries, thus facilitating peer-to-peer transactions and fostering a more accessible trading environment.

Why do traditional AMMs struggle with expiring assets, and what specific challenges do they face?

Traditional AMMs are designed for assets like Bitcoin and Ether that do not expire. They struggle with expiring assets because the forces of supply and demand become unpredictable as the expiration date nears. This is due to factors like vanishing supply (e.g., airlines not adding more seats as a flight nears departure), shifting demand (e.g., people not booking a hotel room if they can't use it before their vacation), and exogenous events (e.g., weather) that can drastically alter prices. These factors make it difficult for arbitrageurs to keep prices aligned, leading to price distortions and increased risk for liquidity providers.

What are the primary risks for liquidity providers when dealing with expiring assets in traditional AMMs?

Liquidity providers in traditional AMMs face increased risks when dealing with expiring assets. The rapid price variations near the expiration date can lead to significant losses. The inability of arbitrageurs to effectively manage price fluctuations due to factors like vanishing supply, shifting demand, and external events further exacerbates this risk. This instability can lead to a less efficient market and financial setbacks for those providing liquidity.

How could solutions for AMMs that handle expiring assets benefit the DeFi ecosystem and what are some examples?

Developing AMMs that can handle expiring assets is crucial for a more adaptable and sustainable DeFi ecosystem. By incorporating mechanisms to manage the unique challenges of time-sensitive assets, these new DEX designs pave the way for a wider range of financial products and services to be offered in a decentralized manner. This could include decentralized trading of airline tickets, event passes, or even insurance contracts, which are currently difficult to trade on traditional AMMs. This expansion allows DeFi to better reflect real-world assets and market dynamics.

What are the implications of the research into AMMs for expiring assets on the future of DeFi?

The research into AMMs for expiring assets represents a vital step towards the evolution of DeFi. By addressing the complexities of time-sensitive assets, this research paves the way for the creation of a more comprehensive, flexible, and inclusive financial ecosystem. It fosters innovation by supporting a wider array of financial products, services, and real-world asset integrations. The future of DeFi will likely see continued development of new solutions tailored to various market dynamics, further strengthening its capabilities and broadening its appeal to users and investors.