Briefing
The core research problem is the systemic extraction of Maximal Extractable Value (MEV) in Automated Market Makers (AMMs), which fosters centralization and compromises user fairness due to the block proposer’s unilateral control over transaction ordering. The foundational breakthrough is the proposal of a novel AMM mechanism, implemented at the application layer, that processes all transactions within a block as a single batch while maintaining a constant potential function. This new paradigm demonstrates that provable guarantees like arbitrage resilience and strategy proofness can be achieved through smart contract mechanism design, significantly reducing the reliance on complex, often-impossible, consensus-layer solutions for MEV mitigation.
Context
The prevailing theoretical limitation in blockchain architecture was the assumption that MEV must be addressed at the consensus layer, a challenge often deemed impossible to solve entirely due to the nature of transaction visibility and ordering power. This created a tension where the pursuit of efficiency and profit by block proposers inevitably led to a centralized off-chain ecosystem for MEV auctions, fundamentally departing from the decentralized equilibrium envisioned for the blockchain infrastructure.
Analysis
The core mechanism is a new AMM primitive that fundamentally redefines how transactions are executed. Instead of processing transactions sequentially, which allows for front-running and sandwich attacks, the new model treats all transactions in a block as a single, atomic batch. The mechanism is designed to ensure that after processing the batch, the AMM’s state, represented by a constant potential function, remains constant relative to its starting point, effectively eliminating the arbitrage opportunities that constitute MEV. This application-layer design provides a provable guarantee of strategy proofness, meaning rational users are incentivized to submit honest trades.
Parameters
- Arbitrage Resilience → Block proposer cannot gain risk-free profit by reordering transactions within the batch.
- Strategy Proofness → An individual user’s best response is to follow the honest strategy when submitting trades.
Outlook
This research opens a new avenue for mechanism design by proving that application-layer solutions can provide strong, provable economic guarantees previously thought only possible at the consensus level. The next steps involve generalizing this potential function approach to other decentralized finance primitives beyond simple AMMs, such as lending protocols and synthetic asset platforms. In 3-5 years, this theoretical foundation could unlock a new generation of DeFi protocols where fairness and user protection are mathematically guaranteed by the smart contract’s design, leading to a more equitable and robust on-chain financial system.
Verdict
The introduction of provable application-layer MEV mitigation fundamentally shifts the blockchain security paradigm from protocol enforcement to mechanism design.
