Netting-based liquidity-saving automated market makers

Automated Market Makers (AMMs) are one of the most used Decentralized Finance services enabling users to exchange cryptoassets 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 AMMs 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 AMMs. Finally, to validate our approach, we develop a simulator and experiment with various application scenarios, yielding insights into the practical implications of our mechanism.