Surplus-Capturing AMM Study Results

Our initial study only focused on the most liquid pair ETH/USDC. Perhaps for more illiquid tokens that do not have a chainlink oracle, the bias would be more pronounced. I also suspect that the more illiquid tokens in a batch, there will be more volatility in the asymmetry of slippage as discussed in CIP-17 here.

However, it’s not clear to me how well the initial study results will hold when considering the gamut of liquidity in on-chain tokens and whether this is something that should be embraced or discouraged. Does COW want users to trade tokens like PEPE through the original Uniswap pool or through COW? I would argue the answer is yes because illiquid tokens leak a disproportionate amount of MEV compared to more liquid tokens.

What is the strategic relationship between solvers and LPs? From my perspective, solvers are a type of market maker, providing orderflow to LPs at the LP spot price while returning a different price to traders that can deviate from the LP spot price. Currently solvers aim to provide the ‘best’ directional prices to traders to buy low and sell high.

Maybe if solvers compete with each other as LPs on price/volume execution, this could create a sufficient check and balance. Thus if a solver tries to offer a manipulative price to traders, then another solver can offer a less manipulative price to traders and win the auction. The conjecture is that solver LP competition would drive the manipulation incentive to zero.