According to a study by MEV-X and HSE University, most of the deals in the decentralised exchange result in short-term deviations from the external market of liquidity pool prices, which continue to benefit arbitrating robots and MEV searchers. According to the article, if AMM continues to charge routine handling fees for arbitrage, the total value that can be distributed by the pool and arbitrator will be reduced.
Study on the distribution of value after price deviations
The study defines this part of the proceeds as “price deviations from value”, i.e. the sum of the arbitrager's profits and the fees charged by the pool from the arbitrage transaction. At this calibre, the question is not only how much the pool can charge, but also how much value can be captured by price deviations from the final release.
According to the article, the arbitrage space is compressed as long as a positive rate is charged for the arbitrage. Some of the price repairs that could have been completed would not have occurred, and the pool would not have received that value, and the external arbitragers would not have been able to do so, resulting in a direct decrease in the total value.
Zero rates push total value to the top.
Research simulations show that when the arbitrage rate is zero, the price deviates from the total value released. Once the rate is increased, the total value begins to decline; when the rate rises to close to 0.99 per cent, the arbitrator has little incentive to continue to correct it, and price deviations may remain in the pool, from which the pool cannot earn income.
The team also tested this conclusion in a variety of market conditions and category 6 AMM structures, including Uniswap V2, Uniswap V3, Balancer, Curve, Trader Joe and DODO. According to the article, the size of the amounts under the different models will change, but the results of the arbitrage zero rate to the maximum total value are generally consistent.
The traditional constant multiplier model has a ceiling
For Uniswap V2, the common x.y=k constant multiplier model, the findings are more direct: If the liquidity provider simply wants to raise its own income by setting arbitrage fees, there is a clear ceiling on the value available.
For example, in the case of small price deviations, the arbitrage rate of the pool is about half the theoretical maximum value when the arbitrage rate is reduced to about 0.50 per cent; if the more common arbitrage rate of 0.30 per cent is used, the pool will receive a lower share, while the arbitrager will still be able to take a significant portion of the profits.
The Hooks program tries to keep arbitrage in the pool
According to the article, the key to the problem lies in the separation of the providers of mobility from the external arbitragers. If the pool is free of charges for external arbitrage, the total value is the highest, but the proceeds flow to external searchers. The alternative proposed by the study is to allow the pool to rebalance internally directly within the same transaction after the user transaction has occurred.
This approach relies on AMM hooks. Using this programmable logic, the pool can execute the internal arbitrage of atomization as soon as the retail user has concluded the transaction, shorten the time window for external searchers to insert the transaction, and reduce the priority fee bid and the MEV leak to block builders.
At the same time, it was stressed that the waiver applied only to internal corrective steps in the pool and that the exchange fee for ordinary users remained unchanged. Retail traders continue to be traded at the original rate, and the regular compensation of liquidity providers continues to come from user transaction costs.