University: University of Technology Sydney
Academic supervisor:
Prof. Talis Putnins
Industry partner: DFCRC
Academic Background and Work Experience
James completed his honours in finance at the University of Technology Sydney, where he achieved first-class honours and the University Medal. He also holds a Bachelor of Commerce from Bond University and currently works as a Graduate Analyst at Betashares, a leading Australian ETF asset manager.
Thesis Topic
Are Automated Market Makers the Future of Foreign Exchange?
Automated Market Makers (AMMs) have risen to a multibillion-dollar industry in stable, high-volume cryptocurrency markets. I apply AMMs to foreign exchange (FX) using the volume and price history from exotic and G10 currency pairs to compare transaction costs. I show that AMMs struggle to compete with the scale of highly competitive centralised limit order books (CLOBs) in wholesale and retail FX trading. I simulate partial adoption of AMMs, showing that at low levels of turnover, the AMMs have an even greater cost disadvantage.
I test each AMM with lower fee levels and optimise the fixed fee level to decrease the transaction costs, yet they remain more costly than CLOBs. AMMs, however, can still provide an alternative to the inefficient FX settlement process.
About DFCRC
DFCRC oversees and operates a 10-year, $180 million research program as a collaboration between industry partners, universities, and the Australian Government through the Cooperative Research Centres Program. Our mission is to develop and leverage the next transformation in financial markets – the digitisation of assets traded and exchanged directly on digital platforms.