A2MM: Mitigating Frontrunning, Transaction Reordering and Consensus Instability in Decentralized Exchanges

The asset trading volume on blockchain-based exchanges (DEX) increased substantially since the advent of Automated Market Makers (AMM). Yet, AMMs and their forks compete on the same blockchain, incurring unnecessary network and block-space overhead, by attracting sandwich attackers and arbitrage competitions. Moreover, conceptually speaking, a blockchain is one database, and we find little reason to partition this database into multiple competing exchanges, which then necessarily require price synchronization through arbitrage. This paper shows that DEX arbitrage and trade routing among similar AMMs can be performed efficiently and atomically onchain within smart contracts. These insights lead us to create a new AMM design, an Automated Arbitrage Market Maker, short AMM DEX. AMM aims to unite multiple AMMs to reduce overheads, costs and increase blockchain security. With respect to Miner Extractable Value (MEV), AMM serves as a decentralized design for users to atomically collect MEV, mitigating the dangers of centralized MEV relay services. We show that AMM offers essential security benefits. First, AMM strengthens the blockchain consensus security by mitigating the competitive exploitation of MEV, therefore reducing the risks of consensus forks. AMM reduces the network layer overhead of competitive transactions, improves network propagation, leading to less stale blocks and better blockchain security. Through trade routing, AMM reduces the predatory risks of sandwich attacks by taking advantage of the minimum profitable victim input. AMM also offers financial benefits to traders. Failed swap transactions from competitive trading occupy valuable block space, implying an upward pressure on transaction fees. Our evaluations shows that AMM frees up 32.8% block-space of AMM-related transactions. In expectation, AMM’s revenue allows to reduce swap fees by 90%. We hope that our work engenders further innovation in the space of efficient and censorship-resilient exchanges, which by design democratizes MEV and let the people trade.

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