  The limit order book mechanism has been the core trading mechanism of the
modern financial market. In the cryptocurrency market, centralized exchanges
also adopt this limit order book mechanism and a centralized matching engine
dynamically connects the traders to the orders of market makers. Recently,
decentralized exchanges have been introduced and received considerable
attention in the cryptocurrency community. A decentralized exchange typically
adopts an automated market maker, which algorithmically arbitrates the trades
between liquidity providers and traders through a pool of crypto assets.
Meanwhile, the liquidity of the exchange is the most important factor when
traders choose an exchange. However, the amount of liquidity provided by the
liquidity providers in decentralized exchanges is insufficient when compared to
centralized exchanges. This is because the liquidity providers in decentralized
exchanges suffer from the risk of divergence loss inherent to the automated
market making system. To this end, we introduce a new concept called margin
liquidity and leverage this concept to propose a highly profitable margin
liquidity-providing position. Then, we extend this margin liquidity-providing
position to a virtual margin liquidity-providing position to alleviate the risk
of divergence loss for the liquidity providers and encourage them to provide
more liquidity to the pool. Furthermore, we introduce a representative strategy
for the margin liquidity-providing position and backtest the strategy with
historical data from the BTC/ETH market. Our strategy outperforms a simple
holding baseline. We also show that our proposed margin liquidity is 8K times
more capital efficient than the concentrated liquidity proposed in Uniswap V3.
