Netting-based Liquidity-saving Automated Market Makers

Abstract

Automated Market Makers ( AMM s) are one of the most used Decentralized Finance services enabling users to exchange crypto-assets directly without intermediaries. However, current protocols impose significant constraints on the liquidity levels required for transactions. In this paper, we propose a liquidity-saving mechanism designed to minimize the liquidity required by AMM services. Our mechanism delays the transactions violating the liquidity constraints in a queue, and, when certain conditions are met, it selects from the queue a feasible transaction sequence that fulfills the constraints and executes them atomically on the blockchain. We provide an operational semantics of such a mechanism that precisely characterizes the interactions between users and AMM s and the conditions when the liquidity-saving mechanism is triggered. Moreover, we show that our mechanism allows for novel liquidity saving behavior for multi-party exchange, multi- AMM arbitrage, and enhances user intent compared to traditional AMM s. Finally, to validate our approach, we develop a simulator and experiment with various application scenarios, yielding insights into the practical implications of our mechanism.