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CLVR Ordering of Transactions on AMMs

Author

Listed:
  • Robert McLaughlin
  • Nir Chemaya
  • Dingyue Liu
  • Dahlia Malkhi

Abstract

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.

Suggested Citation

  • Robert McLaughlin & Nir Chemaya & Dingyue Liu & Dahlia Malkhi, 2024. "CLVR Ordering of Transactions on AMMs," Papers 2408.02634, arXiv.org, revised Jul 2025.
    • Handle: RePEc:arx:papers:2408.02634
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    References listed on IDEAS

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    1. Eric Budish & Robin S. Lee & John J. Shim, 2024. "A Theory of Stock Exchange Competition and Innovation: Will the Market Fix the Market?," Journal of Political Economy, University of Chicago Press, vol. 132(4), pages 1209-1246.
    2. Eric Budish & Peter Cramton & John Shim, 2014. "Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye," American Economic Review, American Economic Association, vol. 104(5), pages 418-424, May.
    3. Eric Budish & Peter Cramton & John Shim, 2015. "Editor's Choice The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1547-1621.
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