Briefing
A foundational problem in decentralized finance is the structural vulnerability of Automated Market Makers (AMMs) to Maximal Extractable Value (MEV), where block producers exploit sequential transaction ordering to front-run users and extract risk-free arbitrage profits, leading to network centralization. This research introduces a novel AMM mechanism that processes all transactions within a block as a single, indivisible batch, enforcing a constant potential function across the entire set of trades. This batch-clearing approach formally proves a strong guarantee of arbitrage resilience for all block proposers and, under conditions of sequencing fairness, achieves strategy proofness , meaning users are mathematically incentivized to report their true demands. The single most important implication is the demonstration that MEV can be mitigated at the application layer through rigorous mechanism design, fundamentally re-aligning incentives to create provably fair, decentralized trading environments.
Context
The prevailing model for decentralized exchange, based on sequential transaction execution within a block, creates a fundamental economic vulnerability known as Miner Extractable Value (MEV). This mechanism allows block producers (miners or validators) to observe a user’s pending trade, insert their own profitable transactions immediately before and after it (front-running and back-running), and capture the arbitrage value created by the price shift. This strategic extraction of value, often described as a form of Bertrand-style competition, harms ordinary users through worse execution prices and has fostered a centralized, off-chain ecosystem where block-building is auctioned to specialized actors, directly challenging the core tenet of decentralized infrastructure.
Analysis
The core breakthrough is the shift from sequential, path-dependent transaction processing to a single-price, batch-clearing mechanism. Conceptually, the new model treats all trades in a block as a simultaneous system of equations. Instead of each transaction being settled against the pool’s state before it, all transactions are settled at a single, consistent price that reflects the aggregate demand of the entire batch. This price is determined by a pre-defined set of rules designed to maintain a “constant potential function,” which is a mathematical invariant of the pool’s reserves.
Because the final state of the pool is determined by the net effect of all trades simultaneously, a block producer cannot inject an arbitrage transaction to profit from an intermediate price fluctuation, thereby eliminating the risk-free profit opportunity that defines MEV. This mechanism satisfies arbitrage resilience even when the underlying consensus provides no sequencing guarantees.
Parameters
- Arbitrage Resilience ∞ Proven guarantee that a block producer cannot gain risk-free profit, even with full control over block contents, sequencing, and order injection/dropping.
- Strategy Proofness ∞ Achieved in fair-sequencing environments, guaranteeing that a user’s best response is to report their true demand and value, eliminating strategic bidding.
Outlook
This research opens a critical new avenue for mitigating MEV through application-layer mechanism design, rather than solely relying on complex, difficult-to-implement consensus-layer changes. In the next three to five years, this principle of batch-clearing with a constant potential function is poised to become a standard design primitive for next-generation decentralized exchanges, potentially enabling a new category of provably fair DeFi protocols. It establishes a formal, mathematical benchmark for fairness, forcing future protocol designs to prove their resilience against the most sophisticated on-chain adversaries and fostering a more equitable and stable foundation for decentralized finance.
Verdict
The introduction of provably arbitrage-resilient batch-clearing AMMs represents a decisive, formal victory for application-layer mechanism design over the foundational economic vulnerability of Maximal Extractable Value.
