CLVR Ordering of Transactions on AMMs
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
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2024
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| _version_ | 1866914610015109120 |
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| author | McLaughlin, Robert Chemaya, Nir Liu, Dingyue Malkhi, Dahlia |
| author_facet | McLaughlin, Robert Chemaya, Nir Liu, Dingyue Malkhi, Dahlia |
| contents | This paper introduces a trade ordering rule that aims to reduce intra-block price volatility in Automated Market Maker (AMM) powered decentralized exchanges. The ordering rule introduced here, Clever Look-ahead Volatility Reduction (CLVR), operates under the (common) framework in decentralized finance that allows some entities to observe trade requests before they are settled, assemble them into "blocks", and order them as they like. On AMM exchanges, asset prices are continuously and transparently updated as a result of each trade and therefore, transaction order has high financial value. CLVR aims to order transactions for traders' benefit. Our primary focus is intra-block price stability (minimizing volatility), which has two main benefits for traders: it reduces transaction failure rate and allows traders to receive closer prices to the reference price at which they submit their transactions accordingly. We show that CLVR constructs an ordering which approximately minimizes price volatility with a small computation cost and can be trivially verified externally. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2408_02634 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | CLVR Ordering of Transactions on AMMs McLaughlin, Robert Chemaya, Nir Liu, Dingyue Malkhi, Dahlia Computer Science and Game Theory Mathematical Finance Trading and Market Microstructure This paper introduces a trade ordering rule that aims to reduce intra-block price volatility in Automated Market Maker (AMM) powered decentralized exchanges. The ordering rule introduced here, Clever Look-ahead Volatility Reduction (CLVR), operates under the (common) framework in decentralized finance that allows some entities to observe trade requests before they are settled, assemble them into "blocks", and order them as they like. On AMM exchanges, asset prices are continuously and transparently updated as a result of each trade and therefore, transaction order has high financial value. CLVR aims to order transactions for traders' benefit. Our primary focus is intra-block price stability (minimizing volatility), which has two main benefits for traders: it reduces transaction failure rate and allows traders to receive closer prices to the reference price at which they submit their transactions accordingly. We show that CLVR constructs an ordering which approximately minimizes price volatility with a small computation cost and can be trivially verified externally. |
| title | CLVR Ordering of Transactions on AMMs |
| topic | Computer Science and Game Theory Mathematical Finance Trading and Market Microstructure |
| url | https://arxiv.org/abs/2408.02634 |