MEV is a significant challenge in DeFi. It allows certain actors to manipulate blockchain transactions for personal gain, leaving liquidity providers (LPs) and retail traders at a disadvantage. MEV searchers can bribe block builders and proposers to reorder transactions, creating unfair trading conditions.
What’s the Solution?
The Hybrid Order Type AMM (HOT AMM) is here to save the day! It’s designed to protect LPs and traders from MEV attacks, such as sandwich or just-in-time (JIT) attacks, while improving liquidity management and increasing returns for LPs.
How Does It Work?
HOT AMM leverages a modular design (called the Sovereign Pool) with key features:
Dynamic Fees: Fees adjust based on trading conditions, shielding LPs from outdated prices and reducing risks.
Flash Swaps: These enable market makers to access instant, signed trade quotes, ensuring fair and up-to-date pricing.
Active and Passive Reserves: Reserves are split into two categories:Active Reserves: Used for regular trades and flash swaps, adhering to standard pricing rules.
Passive Reserves: Unbalanced and accessible only for flash swaps, minimizing risks for LPs.
Why Is This Better?
MEV Protection: The system blocks manipulative practices by dynamically updating prices and utilizing trusted quotes.
Greater Flexibility: LPs can manage their liquidity more effectively, and the system integrates seamlessly with other DeFi protocols.
Increased Returns: With higher trading volume and reduced losses, LPs see improved profitability.
What Makes HOT AMM Unique?
RFQs (Request for Quotes): Arrakis RFQs provide market makers with predictable trade prices.
Sovereign Pools: Modular and interoperable, these pools function like customizable building blocks for decentralized exchanges (DEXs).
Flash Swaps: Time-limited, signed quotes ensure fair transactions and prevent MEV exploits.
The Hybrid Order Type AMM (HOT AMM) represents a significant leap forward in the DeFi ecosystem, addressing one of its most pressing challenges—MEV (Maximal Extractable Value). This issue breeds market unfairness by enabling certain participants to exploit transactions for personal gain. HOT AMM eliminates this vulnerability by introducing innovative approaches to liquidity management and providing protection for liquidity providers (LPs) and traders.
HOT AMM is not just an evolution but a true revolution in AMM design. It proves that security and profitability in DeFi are not mutually exclusive concepts. For an ecosystem often plagued by instability and mistrust, such innovations play a pivotal role in establishing a robust and sustainable infrastructure.
If HOT AMM can demonstrate its effectiveness in practice, it has the potential to set a new standard for DEXs and DeFi platforms. This solution makes the market fairer, more efficient, and more appealing to a broader audience.
#valantis